Our Guide to Building & Financing a Granny Flat

Granny flats also known as secondary dwellings, can allow home-owners to generate extra rental income off an existing property or provide separate housing for any family members looking for their own personal space.

So what’s next?

Before you go around looking to select your new builder, there are a few questions you’ll need to ask and some homework before undertaking your project.

Can I build a granny flat?

Don’t assume that because your neighbour has one, you can have one too. Each state and territory has different laws governing secondary dwellings, with rules on block size and dwelling size and the distance you will need to leave between boundaries, trees and your existing house. In NSW the minimum lot size must be 450 square metres and dwelling sizes can range from 45 – 80 square metres subject to council approval (STCA). Some councils are encouraging second dwellings to help achieve affordable housing and the approval process can take on average 2 – 6 months depending on the council requirements and if your paperwork is in order.

The bottom line? You’ll need to have a chat with your local council to find out the regulations applicable to your property and to see if you meet the minimum requirements.

Who can live in a granny flat?

If you want to build a granny flat in Melbourne, Brisbane or Adelaide to help boost your rental income, think again. According to regulations in these cities, only immediate family or a “dependent person” can occupy your granny flat. In some instances, you may be required to remove your granny flat if that person leaves or dies.

There is more choice across NSW, Western Australia, the Northern Territory, the ACT and Tasmania, it’s generally acceptable to rent out your second dwelling.

How much do granny flats cost?

An average cost of building a granny flat can range from $20,000 to +$200,000. The cost of a granny flat can vary depending on the purpose of the residence and the quality of the builder and materials used. At a cost of $24,000 you may only be able to install a flat-pack DIY dwelling, $70,000 should cover the installation of a one-bedroom prefabricated dwelling while custom designed granny flats can start from around $105,000.

In our experience at BlueCherry Home Loans clients spend on average $130,000 on building a granny flat and in most cases it’s a two bedroom flat with one bathroom. We also have found there are additional costs that clients have overlooked such as landscaping, fencing, council fees, rubbish removal and driveway repair. Note these items can cost between $2000 – $15,000 so it’s best to have these costs ironed out before signing your contract with the builder, we find its best to see what the builder offers and get your own quotes to compare the two.

How does financing work for a Granny Flat?

This is a big investment and can seem attractive with little downside but it needs careful financial consideration to ensure you will be financial stronger. So before you sign up any builder MAKE SURE YOUR FINANCING IS IN ORDER and speak to your lender or mortgage broker to see if you have access to the appropriate funds. Do your homework when it comes to a certified builder and ask them how the payment structure will work as every builder is different, this is crucial as each stage of the building process requires payment to avoid any delays or penalties. We have a team of experts who have worked with various clients that have built granny flats and our team can ensure you have the most competitive loan structure to launch your new building project. Often we find most investors take out construction loans as the rates are generally lower than your standard home loan rates or eating into their equity. Some lenders also offer incentives or bonuses for these types of loans after reviewing your financial position your broker can provide you with various options to suit your needs.

For most investors looking to construct a two bedroom brick veneer granny flat, they borrow on average $130,000 from their existing bank or take out a construction loan. Once your lender start making payments directly to the builder, you will be required to start paying off the loan amount based on the total you’ve borrowed at the time. To give you an idea of the repayments based on a $130,000 construction loan at 3.99%, your monthly repayments are estimated at $760 per month for both principal and interest over a 20 year loan period. Upon completion the lender will also send a valuer out to your property to see that construction has been complete and provide you with a new property valuation due with the second dwelling as an inclusion of the value of your property. On average most two bedroom granny flats in Sydney range from $340 – $420 per week depending on location and size.

If you need a broker to help build you granny flat, then call BlueCherry Home Loans on (02) 9897 1039 to discuss your financing options.