Would you like a free property profile & valuation report? Request your report here.
If your home has a large lot and you’re thinking about building some form of second dwelling to house family or bring in rental income, it can be easy to get excited and start making plans before you’ve explored all your options. The vast majority of secondary dwellings are built as additions to a simple application to the council and a quick check for local regulations. However, based on your plans and desire for flexibility, it’s incredibly important that you weigh your title and property options before committing to a plan.
To be specific, while you might build the exact same structure in all three cases, there is a significant legal difference between a granny flat, a second dwelling, and a subdivided second residential property. Each has a different set of rules that apply, and what determines which rules you must adhere to is primarily controlled by how you manage your land title.
Granny flats are by far the most complicated way to go, but they also have a lot of benefits, especially for retirees maintaining their benefits. Officially, granny flats are secondary dwellings on a residential property and, once registered, must remain as such. This means that once you build a granny flat, you cannot subdivide the land into two separate titles, apply a strata title, or ever sell it as a separate property.
Other than this, the rules vary from state to state. For instance, granny flats can be rented out in West Australia, the Northern Territory, Tasmania, and ACT, but cannot be offered as rental apartments in Queensland, Victoria, or South Australia. There are also usually specific rules as to how big a granny flat can be based on the size of your property.
It should be noted that ‘Granny Flat’ is a common casual term for any small-ish secondary property, attached or detached, registered or unregistered, used for grannies, renters, young adult children, or holiday visitors. Even if you choose one of the other two options, you may still call the second residence you’re building a granny flat. Then there’s a ‘Granny Flat Interest‘ which is a specific term for an acceptable type of residence for collecting state retirement benefits.
The primary benefit of (official) granny flats comes in the form of taxes and the opportunity to comfortably house and care for an ageing relative. If you are providing a granny flat interest, a portion of your utility bills and any other expenses become tax deductible. Eventually, when selling the property, the flat is likely to not be counted as a second dwelling for tax purposes.
Second Dwelling on the Same Lot
Your next option is to simply build a second dwelling on your property without worrying about making it conform to official granny flat standards. This means that the size, design, and usage are limited only by your state and council policies rather than the rules on retirement benefits-friendly housing.
Choosing to build a second dwelling that is not a granny flat does not prevent you from housing your ageing relatives and can even continue to qualify them for benefits depending on the circumstances. The advantage of building a second dwelling on your lot is that you have more options to decide what to do with the property now and later on. If your council doesn’t have any restrictions, you can rent it out if you want to, use it as holiday housing for family, boot your teens to it when they need their own space, or list it as an Airbnb spot for that vacation rental cash. Then, if you want to subdivide into two Torrens titles later or put the two properties on a shared strata title, you can!
Subdivide, Then Build
If you plan on handling the second house, not as an extension of your family home, but rather as a completely separate property, subdivide and then build! Whether you’re building a full-sized or granny flat dwelling, split the Torrens title first, then build on the new empty lot you’ve created. This allows you to follow ‘business as usual’ procedures for putting up a new home and may allow you to get around the no-subdividing rules of granny flat construction, depending on what you’re looking for. This may be the ideal choice if you’re planning to manage and eventually sell the new home separately from the existing residence.
Not only will it ensure that you keep lot assets like pools and driveways separate (meaning no required strata title to split the properties), subdividing first and building second opens up a whole slew of options or ownership and gifting. You could, for instance, keep the land and lease it to someone else to build on, gift or sell the land for someone else to build on or use the second property to help a younger friend or relative finally own their own home in an incredibly tight housing market.
Whether you choose to build a granny flat, a second dwelling, or subdivide and then build whatever your council allows, don’t start your plans until you know what is to be done about the title. To house an ageing relative and gain the tax deductions associated, stick with a secondary dwelling granny flat. If you want the option to subdivide or switch to a strata title to sell the homes separately in the future, building a non-granny-flat second dwelling may be your best option. And if you want to sell or give the gift of home ownership soon, consider subdividing before starting construction.
If you’re not sure which option you should choose, consider speaking with a real estate expert in the form of a conveyancer, lawyer, or real estate agent who can help you understand both the limitations in your neighbourhood and what the best choice for your plans will be.
Read to talk to us about conveyancing? Get started here.