Should You Rent Out Your Granny Flat?
A Comprehensive Guide for Would-Be Investors in South Australia.
You've likely heard the buzz around granny flats, especially with South Australia's recent legislative changes which allow them to be rented out to anyone.
Yep, granny flats have certainly become a hot topic in Adelaide.
That’s because the ability to rent them out opens up a new world of possibilities for both would-be property investors and regular homeowners alike.
But the question remains: is renting out your granny flat the right move?
And when it comes to managing a granny flat lease, should you opt for professional property management or take the DIY route?
Let's explore what granny flats are, the benefits and risks of renting them out, and gain some expert insights from experienced South Australian property managers Kate Barnett and Natalie Jones from We Connect Property, to help you make an informed decision.
What is a Granny Flat?
At its core, a granny flat is a compact, self-contained living area located on the same property as a single-family home. It might be an extension of your house or a separate structure, but either way, it offers a unique combination of privacy and independence, while keeping occupants close to the main household.
"We see granny flats as a versatile solution to a range of housing needs," say Kate and Natalie.
Whether it's accommodating family members, or simply providing more private living space for your family, granny flats have always been adaptable to changing circumstances.
But with the recent shift in legislation, the potential of granny flats has expanded, allowing you to tap into the rental market more easily.
Its primary aim is to help alleviate a severe rental shortage in our state, however with it comes a unique opportunity for homeowners to generate a little extra income during the current cost of living crisis.
And while it has opened doors for property owners and renters alike, it's also introduced a new set of considerations and challenges, especially around managing them.
Benefits of Turning Your Granny Flat Into a Rental
An Extra Stream of Income
One of the most enticing reasons to rent out your granny flat is the potential for additional income, especially as we live through a cost of living crisis.
“It’s a win-win situation," says Kate Barnett.
"It's a fantastic way to utilise unused space for a good cause — and profit. Landlords can capitalise on their unused space, while tenants can enjoy more affordable living options.”
With the high demand for affordable rentals on the rise, your granny flat could quickly turn into a significant income source.
Enhanced Property Value
"A well-constructed and maintained granny flat not only adds to your property’s functionality but can also boost its overall market value when time comes to sell," Natalie points out.
That’s because potential buyers often view an additional self-contained dwelling as a bonus, providing them with more options for private use or an additional income stream.
If you can show it’s been used as a rental before, it can become a huge selling point for interested buyers.
Versatility for Future Use
Granny flats offer incredible flexibility for property owners.
Today, it might serve as a rental unit to generate some extra income; tomorrow, it could be a home office or a space for aging parents or grown children.
This adaptability is a huge plus, ensuring your property meets your needs at various stages of life.
By considering how your granny flat can serve various purposes over time, you can invest in a space that remains relevant and beneficial, no matter what the future holds.
Are There Risks When it Comes to Renting Out Granny Flats?
The short answer? Yes, there are.
While the benefits may sound appealing, it’s important to balance this with the risks that come with renting out a granny flat alongside your primary place of residence.
Selecting the Right Tenant and Maintaining Privacy
The proximity of a granny flat to your main house means the tenant selection process is critical, as landlords and tenants will invariably come into contact with each other.
"The importance of finding the right tenant cannot be overstated," emphasises Kate.
"That’s because the right tenant makes all the difference in maintaining privacy and harmony.”
Ensuring you have a reliable, respectful tenant is key to a positive landlord-tenant relationship.
Without a proper tenant selection process, this situation could lead to frustrating privacy issues and conflicts.
While you can choose to navigate this step alone, professional property managers have the experience and resources to conduct thorough tenant screenings, to ensure you find a tenant who respects your property and your privacy.
Legal and Insurance Hurdles
Compliance with local laws and finding suitable insurance coverage are significant hurdles too – and can prove daunting.
"Because the legislation is so new, understanding new guidelines, and attaining insurance for granny flats could be tricky," Natalie warns.
"Not all insurance policies cover granny flats, especially when rented out."
Landlords need to navigate these legal and insurance aspects carefully to protect themselves against potential liabilities and unforeseen legal issues – which is where the professionals can help.
"Mistakes in lease agreements or handling tenant disputes can lead to significant issues," Natalie cautions, “and without a property manager, you're on your own when finding solutions to these challenges.
"It’s a professional property manager’s job stay updated on all legislative changes, and protect landlords from potential legal pitfalls," she notes.
“They can also advise on the best insurance policies that cover granny flats, providing peace of mind.”
Ongoing Maintenance and Relationship Dynamics - Especially if DIYing
Living close to your tenants can blur personal and professional boundaries, and managing the landlord-tenant relationship, including disputes, can be challenging.
"Living in such close proximity means you'll receive all requests - and complaints - directly," Natalie cautions.
“This can be time-consuming and, at times, challenging.”
This is where a professional property manager could be worth their weight in gold.
"Property managers act as a buffer, handling all communications and maintenance issues, and ensuring a professional relationship is maintained," says Natalie.
This can prevent conflicts and ensure any issues are resolved swiftly and efficiently.
Either way, it’s essential to be prepared for the ongoing responsibilities of becoming a landlord.
Turning your granny flat into a rental property offers a wealth of opportunities, from generating extra income to increasing your property's value.
However, it also comes with a set of unique challenges, including tenant selection, legal compliance, insurance and maintenance responsibilities.
That’s why Kate and Natalie highly recommend engaging a property manager, especially for new landlords.
“While DIY management might offer upfront cost savings, professional management provides expertise, legal protection and peace of mind.
"The value of a property manager goes beyond just handling day-to-day tasks; it's about ensuring your investment – whether that be a entire home or granny flat - is protected and profitable," they conclude.
"A property manager can be a crucial liaison, ensuring everything runs smoothly and professionally."
As you weigh the pros and cons of renting out your granny flat, remember the importance of doing your homework, seeking professional advice and maintaining open lines of communication.
With the right approach and support, your granny flat can be a valuable (and stress-free) addition to your investment portfolio, providing benefits for years to come.
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DISCLAIMER: All recommendations made by We Connect Property are general in nature and not to be relied upon as legal or financial advice. To ensure accuracy, we always strongly recommend seeking independent, professional advice tailored to your specific situation before making any investment or financial decisions.