Parents wanting to build a granny flat on our property

Hi,

Our PPOR is a 2 acre property near a large regional town in the Hunter Valley. We only purchased last year, it is a paradise for us and we find living here has made us happier and healthier.

My ageing parents live 3 hours away and want a place closer to the grandkids (our kids). They have plenty of cash and could buy their own property near us but no, being a little tight and loving where we live they would prefer to just build some sort of granny flat on our land.

At this stage I am not sure I actually want them in my space (even thought they would only be there probably one week per month). But I can see some benefits of the granny flat - could Air B&B it (there is demand for this in our area). They also said we could use it for our friends/visitors whenever they were not there. Good for the kids to see more of their grandparents I suppose.

I have a sibling, so to make it fair they said they would adjust their wills to make it fair as we would inherit the granny flat when they passed.

We plan to stay in the property for a very long time, our kids are in a great school here and we have solid jobs. The mortgage on the property is only about 15% of the total value so even if one of us lost work we wouldn’t need to sell. It is definitely our forever home.

At some stage in the next year or two we want to draw out some equity for one or two IP’s.

Would this granny flat be a crazy idea? Has anyone done this sort of thing with family? Anything I should look out for or think about?

thanks

 

Parent won't be on the title of the property so it will technically be yours even if they use their cash to build it. think about how that affects splitting it with your sibling when they pass, you can't just sell the granny flat unless someone wants to take the thing off your block of land.

 

Parents would reduce our share of inheritance for the price or value of the granny flat.

 

If you're not sold on benefits/prospect of them being close to the kids etc... or the utility of having the additional space.... then you can look at the hard numbers

If you're set to inherit the money then essentially it is your money... so would the granny flat build provide a tangible ROI? E.g. Would it improve the value of the property by the amount that is being spent? If you decided look at future rental or airbnb would this be a path to profit/ROI?

(May be tax implications for rental income/AirBNB to consider)

 

It sounds like the doubts you have are personal. Are you looking for a financial reason to say no?

 

Forget the numbers. I sense you're trying to justify why you should based on the financial benefits.

You need to ask yourself WHY you don't (this is not an attack on you - you have your reasons and the people it should be discussed with are the ones affected - for anyone else - its none of their business unless you want to share the info with them).

For every reason why you should, there is a reason why you shouldn't. What you need to resolve is whether there is a way to mitigate the problem - not compensate the problem.

I'm sure these points will come up during discussion with your family (so just something you can be aware of and have a think prior to having the discussion):

- We're only going to be there once a week, so we're not going to be in your way
- If you're going to AirBnB it, we want <insert %> of the proceeds
- Your land is 2 acres (8000sqm), you won't even notice us
- Your land is 2 acres (8000sqm), we'll put it right near the boundary, so its no different to us having bought next door and putting a house on it.

 

Are your parents on any Centrelink pension?

This may affect their benefits as they would be gifting you the value of the granny flat.

 

The main issue to consider is how often they use it. As they have paid for it, it is their place, morally if not legally.

So move forward a bit, and the one week a month becomes two, then they like it so much they are there more often than not? Maybe even basically move in? And Airbnb may not be easy if the granny flat is filled with your parents’ possessions.

What does your husband/wife think of the idea?

Since you say your parents have the money, buying a separate place may be the better option for family harmony.

 

Quite possibly yes. I do have personal reservations eg, having visions of it becoming like an ‘Everybody Loves Raymond’ scenario. But I want to think through the financial implications as well before we decide anything.

 

Tiny home on wheels solves the problem

If they misbehave tow it away when not looking.

But it is theirs not yours. Build a custom one.

Make a video of it and sell it to the networks.

 

No pension, they’re self-funded retirees.

 

If they are self funded retirees it doesn't seem like a 100k granny flat would have any significant financial implications.

 

Them moving in full time is a concern that I have, particulary as I can see my Mother’s health is declining. But given they paid for the place I would not stop them.

I would actually be more than happy for my Dad to move in to it full time and even care for him as he gets older. But unfortunately with my Mother living there full time it would not be good for me. I can only handle her in small quantities. And she can be quite spiteful if she doesn’t get her way, and she is really pushing for this, so I’m trying to carefully weigh up all of the considerations both personally and financially.

My husband is very easy going and is happy to go along with whatever I want to do. He gets along well with my parents. He would not love having them here full time but on a part time basis he’s ok with it.

 

The specific placing of it is important as well.

 

They would have a beneficial interest in the property which could cause issues down the track. An alternative may be for the child to borrow from the parent and treat it as a loan. It could be interest free. No need to adjust wills (unless they want a notional interest amount taken into account) and no equitable interest. The child could potentially keep the property fully exempt from CGT using the main residence exemption too.

 

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