Increasing the size of your property may increase its value. According to a report by Core Logic and Archistar,2 adding an extra two bedrooms and an additional bathroom, for example, could add as much as 32% to the value of an existing property. Obviously, the better the quality and livability of the addition, the greater the likely value increase (among other local market factors). An independent registered property valuer should be able to advise you on the type of addition that would optimise your property’s value, considering your neighbourhood.

New building: Archicentre offers a construction price guide and cost calculator which may help you estimate the costs of adding to your property. Granny flat providers suggest costs from $120,000 to $140,000 for a completed one-bedroom dwelling, to between $145,000 and $155,000 for
a two-bedroom home.

Modular building: Pre-built granny flats and converted shipping containers may be available at lower price points than those mentioned above.6

Other costs: Site access, water, sewerage and electrical connections will also affect costs. Also consider landscaping, as it’s an investment that could make the property much more appealing over the long term.

Capital gains tax exemptions: May be available where there is a granny flat arrangement. This is a written agreement that gives an eligible person the right to occupy a property for life that’s not commercial in nature. However, ensure that advice is obtained from a tax professional if this is of interest to you.

Also remember that adding a secondary dwelling does not entitle you to sell it on a separate title in the future.

State governments have eased requirements on secondary dwellings in recent years to help tackle the housing shortage, but you still need to check with your local council to see if your property is suitable. Consider:

• Local council requirements. Check what types of structures your local council allows in your area.
• Space. Consider any state or council rules for separate entrances, setbacks from fences and building to land ratios.
• Privacy. Will there be enough privacy for family members? And for the long term, is the privacy appropriate for a renter who’s not related to you? Separate entrances, decking and planting arrangements can assist.

If you’re planning to live and share property assets with family members, talk to your solicitor and get the arrangement set out in writing. This is to protect everyone involved and avoid conflict in the future.

You’ll want to establish how much each family member is contributing to the construction or purchase costs as well as to other expenses such as rates, insurance and maintenance. Your legal agreement should also consider estate planning implications and set out what happens if a family member wants to move out or sell the property.