Reshape your backyard to grow your property portfolio

Last week we touched on the Government’s new initiative to boost the housing supply across Victoria with the reforming of the planning system to no longer require a planning permit to build a granny flat on certain properties. This is a real opportunity to consider to maximise your real estate potential growing your portfolio…not just for Victorians. It’s been identified that over 655,000 properties from Melbourne up to Brisbane are eligible for a granny flat.

Here’s the deal; homes on blocks of 300sqm plus with no overlays will no longer need permits to build second homes that are less than 60sqm. Blocks that are smaller than 300sq m will get approval within just 10 days through VicSmart! So no more waiting months, and even years to get plans approved! It’s a real game-changer.

The government is encouraging the building of self-sufficient dwellings in an attempt to ease the housing shortage crisis we are in, boost income for homeowners and investors during a higher cost of living period and, improve the support and living conditions for intergenerational families.

It’s going to be a building boom! So get in quick to connect with tiny home or granny flat manufacturers or builders. Jump on Gumtree or Facebook and see what is out there. Sometimes moving a home can be cheaper than building. Hannah’s mum has done just that. She bought a 1950’s home from Edithvale and had it transported to Daylesford for less than 1/3 of the cost of building a 3 bedroom home from scratch! They’re out there, you might just have to get savvy and hunt!

On the other hand, some kit homes are easy one day installations or you could opt for a tiny home which are usually smaller and less self-sufficient but might bring you similar value for less cost or time to install. Remember, these secondary dwellings must be self-sufficient, and suitable for all year round living including a kitchen, appropriate heating and cooling, and bedrooms and living spaces.

According to CoreLogic, adding a granny flat could boost the value of your property by 30%. Similarly, they predict if you were to rent it out along with the home as an investor as a short-term rental you could be adding 27% to your rental income for the property. What an opportunity to build your investment portfolio right from your own backyard. Note, these granny flats cannot be sold separately from the main home unless the land is subdivided, which on small blocks, is very unlikely. When adding a flat to larger blocks on one title, consider the longer-term opportunity to subdivide. This will involve factoring what facilities and planning permit requirements there might be, such as direct access and connecting utilities. It’s always best to play the long game and think big when designing and building such extensions.

 

Family Extension

Building a granny flat on your property is a great way to support your immediate and extended family. As your children grow up, teenagers often need more privacy and space with a sense of independence. Similarly, but at the opposite end of life, aging parents may need to live close to family members for support and connection. Sometimes elderly parents may switch their main home for the granny flat with their child. It’s very important to have clear discussions with all your children and I highly recommend writing an agreement to avoid causing any issues or leaving liabilities once the elderly parents pass. Fairness and openness is crucial in the above situation for all parties involved and seeking legal advice is important.

 

 

Tax Implications

Everyone’s situation is different and adding a flat to your property just might be too good to be true. These granny flat additions can potentially open the door to income, tax, and legal issues. I strongly recommend discussing this opportunity with your financial adviser or accountant.

You may need to consider the implications to your pension entitlements. Check in with Centrelink as they have specific rules around granny flat arrangements. Receiving rent from the granny flat whilst on the pension may reduce your pension and may even lead to no income at all.

If you plan to make the flat a short-term rental, consider the 7.5% short-term rental levy and other implications that may come into play when renting out the flat. It is important to know that rental income made from the flat will forfeit the capital gain tax exemptions on your main home. Also, expenses for running the flat as a rental can be deductible such as land tax.

Renting out your flat on your own property to a relative is seen as a non-commercial transaction where expenses will not be taxable or claimed.

If you are an investor who is building a granny flat or tiny house will need to apply for an ABN and may be liable for GST.

 

Overall, this opportunity is one to definitely investigate as to whether it will aid your situation. Be thorough in your research and ensure it is specific to your own financial circumstances. Consult your financial advisor or accountant before making any decisions. A side note, consult your neighbours before building too. There is nothing worse than living next to angst and hostility.

Contact Phoebe

Phoebe is available for interviews, guest appearances, article commentary, and talks on a range of topics relating to property, mortgage broking, and personal finance (particularly for women!).