If you are looking for ways to increase the rental returns on your Perth investment property, you may want to consider building a granny flat.
A granny flat describes a secondary dwelling on a property that can be built as an attachment to the main residence, garage, or as a completely independent structure. Granny flats are an excellent way of increasing rental returns and increasing the overall value of your investment property at the same time. In addition to an increase in returns, granny flats increase the amount of space available to tenants and can be an ideal solution for family members or elderly relatives seeking independence from the principal residence.
The benefits of building a granny flat
Intergenerational living: Opting to build a granny flat on your Perth property can be an ideal solution for family members or elderly relatives seeking independence and privacy. As the Perth property market is slowly starting to recover, some homeowners may want to help subsidise their loan repayments by having their adult-aged children or elderly family members rent out the granny flat. This allows them to maintain a level of independence by living in a separate residence and gives property owners the ability to stay close.
Twice the room, twice the rent: For Perth property investors who have a small residence on a large block, adding a granny flat could be the solution you’ve been looking for to make the most out of the space (and income) available. Rather than renovating the main residence, adding a granny flat gives you the extra rooms and bathrooms to improve your performance on the rental market. Increasing the number of rooms and bathrooms in your Perth investment property opens up the opportunity to target a larger number of tenants. This means you have to ability to increase the property’s rental rates without having to make any serious structural changes.
Tax deductions: Just like other types of investment properties, a granny flat can be positively or negatively geared. You can use the additional rental income you receive from the granny flat to help pay off any loan repayments; however, if the costs of maintaining the property and repayments is more than your returns, the property will be negatively geared, giving you additional tax deductions. Additionally, you will also be able to claim any deprecation in the value of your granny flat as a deduction as well.
Potential to add value: One of the major benefits of building a granny flat on your Perth property is that it can increase the overall value of your investment. Added space and amenities means the overall value of your property increases i.e. increasing your property from a two-bedroom, one bathroom to a three-bedroom, two-bathroom rental with an additional living space. If you are unsure whether adding a granny flat to your property is the right move, speak to your Perth property manager to find out how just much value it could add to your investment property.
Tax implications of granny flats
It is important to note, building a granny flat at your investment property will incur additional tax implications. Depending on how you plan to use the granny flat, you may be required to make additional tax payments to cover the secondary rental income. Whilst your main property is typically exempt from Capital Gains Tax, adding a granny flat creates an additional residence, and therefore can incur CGT. This ultimately depends on whether you are leasing the granny flat out to a relative or renting it out to a third party for income-producing purposes.
Manage your investment properties with Rentwest Solutions
If you need advice on whether building a granny flat is the right move for your Perth property or are looking for a property manager to oversee your investment, the team at Rentwest Solutions can provide the solutions you need. Our experienced Perth property management team can offer expert advice on the potential rental returns of granny flats, and the additional implications you need to be made aware of. If you’d like more information on our Perth property management solutions, visit our website or get in touch at [email protected] or 08 9314 9888.