C’mon is it just me or does this picture look ridiculous?
No it’s not the latest and greatest property concept to hit the market but it is certainly gobbling up some suburbs and changing the face of Australia.
What I mean by that is that there are a huge amount of companies cashing in on this… and yes it’s attracted the Sharks, those property spruikers who simply rip property owners off.
The concept is simple; if you live in a shire where the council allow granny flats to be built and your home or investment property block of land qualifies, then you can put a one or two bedroom granny flat on it. Then you can rent out the granny flat and start to receive an income.
But the theory and the practical are two completely different things.
Western Sydney has been inundated with Granny Flats. In some streets EVERY house has a granny flat. Turning low density areas into medium density areas with lower income earners. This can cause major social issues.
This is apparent by the huge volume of Granny Flats for lease…
Parking also becomes a problem as each property now doubles the amount of cars parked there each night. Many of the houses must lose the garaging to accommodate to granny flat, meaning more street parking of cars.
Now surely none of these Granny Flat companies would be ripping off investors and home owners on the cost to construct a Granny Flat, would they? Surely not… that wouldn’t happen!!!
Well surprise surprise, some are… yeh I know I am shocked too.
A Granny flat – 50m2 can cost between $90,000 and $115,000.
To put that into perspective, you can build a 3 bedroom brick and colorbond house with single garage for $130,000. Verse a one-bedroom granny flat made of paper Mache… sorry I shouldn’t be that cruel, they are made of weatherboard… very expensive weatherboard mind you…
But how do investors get sucked into being ripped off?
Easy, they are blindsided by the yields on offer and simple do not do their homework before a sharp salesman signs them up… nothing different!!!
Now lets look at some of the photos, get ready for a laugh. The top photo, imagine owning the lovely 2 story home next door. What appears to be there kitchen window in the bricked section now looks directly into the lounge room of the Granny Flat, less than 2 metres away.
Now tell me that their house has not dropped significantly in value and there’s not a thing they can do about it.
The next two photos are of a Granny Flat in St Clair. Do you think the house and Granny Flat are close enough… so much so that the main bedroom (closest room that you can see in the house) has its windows boarded up. How inviting to live in a room with no windows.
If you are looking to invest in an area where Granny Flats are allowed the you really need to do your homework as this style of investing has skewiffed the Median house price too. So you buy a house for $300,000 and then add a Granny Flat for $100,000 and then sell the property for $420,000. Now simply looking at the numbers would show you that this suburb has increased significantly in Median House price… when in reality it has not. This investor really has lost money with this deal when you factor in stamp duty and real estate sales fees. But the numbers show a purchase of $300,000 and a sale of $420,000… thats a 40% gain. So don’t be fooled… it doesn’t factor in the $100k granny flat cost.
Now I am sure that many homeowners who have a granny flat will not declare the rent in their tax returns that they receive. This income is investment income and therefore is required to be declared. On the flip side you can claim for the construction of the granny flat as you would an investment property. But be wary, as the amount you claim may be apportioned the square metres of the granny flat verse your home. A private ATO tax ruling is advised.
The funny part is that if you are not declaring this income, the ATO wont find it hard to find you. They will simply go door to door in those inundated suburbs.
They will have a field day with this!!!
Having said all that, I am not against the concept of Granny Flats but there needs to be better control on the block size and some practicality to the block shape and Granny Flat positioning. And definitely not in a neighborhood that’s not inundated with them.