Granny flats can be good financial investments

Building granny flats and renovating out buildings have become the latest craze for homeowners as they try to combat economic pressures by generating rental income, or provide accommodation for relatives struggling to afford their own homes.

Estate agencies have confirmed that the number of people making such additions to their properties has rocketed, and is a notable trend in areas such as Umhlanga, Musgrave, La Lucia and Glenwood.

Carol Reynolds, area principal for Pam Golding Properties in the Durban North and La Lucia areas, said granny flats and staff quarters renovated into "beautiful garden cottages" were very common, and the trend had shifted from accommodating live-in staff to having income-generating cottages.

"I would estimate that more than 50 percent of the free standing homes in the Durban North area have self-contained granny flats. In many instances, these are rented out, and the returns are excellent."
She said most garden cottages achieved rentals of about R3 500 to R4 000 a month.

"We have also noticed an upsurge in family members living together on the same property, particularly following the recession. Grandparents or family members who are studying will often live in granny flats."
Reynolds added that the rental incomes should be seen as generating return investment, and not as an investment on capital.

"A granny flat conversion will probably cost in the region of R100 000 to R200 000, and the return at R3 000 to R4 000 per month is excellent. This translates as an annual return of R36 000 t0 R48 000."

Myles Wakefield, CEO of Wakefields Estate Agents, agreed. The group expected to see more families "clubbing" together to cover costs in the face of rising retirement and living costs.

"One of our clients, for example, built a granny cottage because their children and grandchildren were staying with them for a period... There is also the working-from-home advantage."

Furthermore, the advantage of a good tenant or family on the property was the additional security while, conversely, having people in the main house provided security for the occupant of the granny flat.

"A survey of Wakefields Real Estate Agent branches put this additional property value at anything between 10 percent and 20 percent. However, this will always depend on the area and the type of building, and the return. Buyers make a clear distinction between a proper granny flat and a garage or outbuilding that has been converted," he said.

For distinction, Wakefield explained that a granny flat was 50m to 60m2, offered at least one bedroom, a bathroom, an open plan lounge/dining room and kitchenette, was well finished and preferably free standing and private with secure parking.

"At present, the rental demand for additional units is without doubt greater than the supply... [But] before rushing out to convert outbuildings or the garage or build an additional unit be warned: building costs are high, and you need to carefully work out if you would make sufficient return on your investment.
Building plans also needed to be authorised.

Although converted domestic quarters and garages could be "quite nice" accommodation, Wakefield said others argued that the loss of these attributes devalued the property.

In Umhlanga, granny flats at parents' or family houses were very popular for young people who could not afford the high rent in the greater Umhlanga area and many did not qualify for bonds, said Gareth Bailey, CEO of the RE/MAX Address Property Group.

In the Berea, Morningside and Glenwood areas, Bailey said, there had been a move towards either buying property with a flat, or space to add one on.

"Many of the buyers in our area are generally young couples wanting to accommodate their parents either immediately or at some point in the future."

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