Thinking about adding a granny flat to your property? You're not alone. A lot of new property developers are looking for a cheap way to start their journey, and so a granny flat is on their radar.
Whether it’s to house extended family, earn rental income, or boost the property’s value, granny flats are growing in popularity across Australia. But there's one important question to answer before you get started on your property developer journey - is it actually a development strategy?
I'm glad you asked.
The short answer is yes - a granny flat is generally considered a form of development under planning legislation in most Australian states and territories.
But that's only one point of view. And I have a different one! Let's start by being clear about the definition of a granny flat.
What Is A Granny Flat?
A granny flat can also be called a secondary dwelling. It's a small, self-contained home located on the same lot as a main dwelling. It typically includes a bedroom, bathroom, living area, and kitchen or kitchenette.
While traditionally built to house elderly family members, these days granny flats are used for:
They can be attached or detached, but granny flats are not standalone titles. They cannot be sold separately to the main house.
It's in this way that a granny flat is fundamentally different to a subdivision. In a subdivision, the new lot/dwelling's title is separate to the main site, meaning it can be sold separately.
Development vs Investment
At this point you're probably wondering if I'm nitpicking by questioning whether a granny flat is a development strategy or not. But the fact is, I'm not judging it primarily by how Council planning thinks about it - I'm looking at you, as the property developer.
Now, I'm aware that the terms "property developer" and "property investor" are often swapped without anyone batting an eyelid. But the fact is, they are quite different approaches.
I wrote a whole article about it here: What Do You Want To Be When You Grow Up? but here's the speed dial version.
A property investor is someone who puts in a small amount of effort with a view to holding an asset for a longer period in order to make money. Essentially the buy and hold approach. There are some tweaks that can be made to that definition, but let's keep it simple! Read the article if you want to break it down further.
A property developer is someone who puts in a lot of active effort over a short period of time in order to force value on the property and manufacture profits. Some might argue with the word "short", but again, let's keep it simple. The goal is to acquire property at wholesale, not retail.
Confused Yet?
If you're not confused, you probably should be. Because on the one hand, adding a granny flat is a way to add value to a property, which clearly comes down on the "developer" side of the equation.
The difference, at least in my mind (which to be fair is a confused and torturous place!) is WHY you're adding a granny flat. And that's where the scales start to tip towards an investment strategy.
Stay with me. Putting aside the need to provide accommodation to a family member, why do investors generally add a granny flat?
In other words, you mostly only get back what you've already put in, in terms of the costs of adding the granny flat in the first place.
Which means that in the long run, adding a granny flat is primarily a long-term income play. Going back to my earlier definitions, that makes it an investment strategy.
Now What?
Look, I'm not saying you should never add a granny flat to a property. For some people, it can be a great way of bumping up their income to improve serviceability.
All I'm saying is be very clear about why you're doing it - it's an income play.
Then sit down and work out the next step after the granny flat. Will pursuing the granny flat strategy make it harder for you to take your next step as a developer? While it might feel great to have some extra income behind you, what's the opportunity cost of tying your funds up in the granny flat?
Having said that, remember that there are always ways to move forward if you're willing to pursue them. One of my favourite phrases bears repeating: Don't let your lack of resources stop you from being resourceful. I've long advocated for a range of low and no money down strategies to help you move forward, which you can learn in my short course on the subject.
The bottom line is that for property developers and investors alike, a secondary dwelling can form part of a broader strategy. It can be more than just extra space - it can be a smart, profitable step forward in your property journey.
Just don't mistake it for a development strategy. At least in front of me!
Whether it’s to house extended family, earn rental income, or boost the property’s value, granny flats are growing in popularity across Australia. But there's one important question to answer before you get started on your property developer journey - is it actually a development strategy?
I'm glad you asked.
The short answer is yes - a granny flat is generally considered a form of development under planning legislation in most Australian states and territories.
But that's only one point of view. And I have a different one! Let's start by being clear about the definition of a granny flat.
What Is A Granny Flat?A granny flat can also be called a secondary dwelling. It's a small, self-contained home located on the same lot as a main dwelling. It typically includes a bedroom, bathroom, living area, and kitchen or kitchenette.
While traditionally built to house elderly family members, these days granny flats are used for:
- Adult children
- Long-term renters
- Airbnb guests
- Home offices or studios
They can be attached or detached, but granny flats are not standalone titles. They cannot be sold separately to the main house.
It's in this way that a granny flat is fundamentally different to a subdivision. In a subdivision, the new lot/dwelling's title is separate to the main site, meaning it can be sold separately.
Development vs Investment
At this point you're probably wondering if I'm nitpicking by questioning whether a granny flat is a development strategy or not. But the fact is, I'm not judging it primarily by how Council planning thinks about it - I'm looking at you, as the property developer.
Now, I'm aware that the terms "property developer" and "property investor" are often swapped without anyone batting an eyelid. But the fact is, they are quite different approaches.
I wrote a whole article about it here: What Do You Want To Be When You Grow Up? but here's the speed dial version.
A property investor is someone who puts in a small amount of effort with a view to holding an asset for a longer period in order to make money. Essentially the buy and hold approach. There are some tweaks that can be made to that definition, but let's keep it simple! Read the article if you want to break it down further.
A property developer is someone who puts in a lot of active effort over a short period of time in order to force value on the property and manufacture profits. Some might argue with the word "short", but again, let's keep it simple. The goal is to acquire property at wholesale, not retail.
Confused Yet?If you're not confused, you probably should be. Because on the one hand, adding a granny flat is a way to add value to a property, which clearly comes down on the "developer" side of the equation.
The difference, at least in my mind (which to be fair is a confused and torturous place!) is WHY you're adding a granny flat. And that's where the scales start to tip towards an investment strategy.
Stay with me. Putting aside the need to provide accommodation to a family member, why do investors generally add a granny flat?
- To increase yield without subdividing the land
- To improve the valuation of a site
- To increase cash flow while land banking for future development
In other words, you mostly only get back what you've already put in, in terms of the costs of adding the granny flat in the first place.
Which means that in the long run, adding a granny flat is primarily a long-term income play. Going back to my earlier definitions, that makes it an investment strategy.
Now What?
Look, I'm not saying you should never add a granny flat to a property. For some people, it can be a great way of bumping up their income to improve serviceability.
All I'm saying is be very clear about why you're doing it - it's an income play.
Then sit down and work out the next step after the granny flat. Will pursuing the granny flat strategy make it harder for you to take your next step as a developer? While it might feel great to have some extra income behind you, what's the opportunity cost of tying your funds up in the granny flat?
Having said that, remember that there are always ways to move forward if you're willing to pursue them. One of my favourite phrases bears repeating: Don't let your lack of resources stop you from being resourceful. I've long advocated for a range of low and no money down strategies to help you move forward, which you can learn in my short course on the subject.
The bottom line is that for property developers and investors alike, a secondary dwelling can form part of a broader strategy. It can be more than just extra space - it can be a smart, profitable step forward in your property journey.
Just don't mistake it for a development strategy. At least in front of me!
