When it comes to improving return on investment through renovations, it can be helpful to think outside the box.
Something investors might not have considered is a granny flat – an increasingly popular approach for improving ROI. A separate building is the most common choice, but depending on the property, there is also the option to reconfigure part of a house to encompass a granny flat.
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CASE STUDY
In 2017, one of our owners purchased a four-bedroom, two-garage home in Aberglasslyn for $408,000 (+stamp duty). The potential was identified to convert the property to a three-bedroom, one-bathroom house with a one-bedroom, one-bathroom granny flat.
This renovation would have a dual purpose: increasing rental income and achieving overall capital growth.
A designer, private certifier and builder were engaged, with planning permission engaged afterwards to speed up the process.
The project was initially expected to take five months but was extended to seven months.
Granny flat shown in outline above.
BEFORE:
Rent: $390/week, Sales appraisal value: $408,000
AFTER:
Rent: $640/week (combined), Sales appraisal value: $530,000
This equates to $13,000 additional annual income and a 9.9% ROI on the total cost of the improvements (approx. $131,000, inclusive of the vacancy period).
The new sale value is not yet confirmed by a sales agent, but the owners were advised that the new price would be equivalent to the purchase price plus the cost of renovations. On that basis, the sale value is estimated to be in the vicinity of $530,000.
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WORKS COMPLETED
- The firewall built between main property and granny flat
- Roof altered to achieve the above (unanticipated cost)
- Hallway reconfigured
- Kitchen and laundry facilities added to granny flat
- Separate living areas and gardens established
- Painting completed
- New blinds installed
- Carpets cleaned
- Landscaping completed and pergola added
- Alarm system added
- Fencing and security mesh installed
- Currently considering adding a carport for granny flat
Granny flat interior
Backyard before (Image via realestate.com.au)
Backyard After
Backyard after
Key Takeaways
- A case study shows converting a property to include a granny flat significantly boosts ROI.
- In Aberglasslyn, a four-bedroom house was renovated to a three-bedroom house with a granny flat, increasing weekly rent from $390 to $640.
- The project, costing approximately $131,000, resulted in a 9.9% ROI and increased the property's sales appraisal value from $408,000 to $530,000.
- Renovations included building a firewall, altering the roof, reconfiguring spaces, and adding amenities to the granny flat.
Wondering whether or not to add a granny flat?
If you are looking for more information on adding a granny flat to your investment property or, looking for general advice to start your property investment journey, get in touch with the Investment Services team today.
