Landlord Insurance For Granny Flats

insurance for granny flats

Landlord insurance for granny flats.

Amid calls from governments and various groups advocating for granny flats to be utilized for rental accommodation, it's crucial to understand what you need to know about insuring your investment.

Traditionally, granny flats have housed elder family members, hence the term 'granny flat.' These ancillary dwellings have been a fixture in Australian backyards for decades, providing a separate living space for family members. They offer an option to keep families together while allowing for independent living.

Please note that according to the Residential Design Codes, an ancillary dwelling, commonly referred to as a 'granny flat,' is defined as a self-contained dwelling situated on the same lot as a single house. It may be attached to, integrated with, or detached from the single house.

Until quite recently, granny flats were restricted to occupancy by family or household members. However, this has changed significantly. Granny flats are no longer exclusively for grannies; in most states, they can now be occupied by anyone and utilized to generate rental income.

Research conducted by Gateway Bank a couple of years ago revealed that 23 percent of the country's granny flats were utilized to generate rental income. Additionally, analysis of all residential properties across Sydney, Melbourne, and Brisbane identified more than 655,000 sites suitable for the construction of a granny flat, according to CoreLogic, Archistar, and real estate construction lender Blackfort.

CoreLogic further notes that integrating an extra two bedrooms and an additional bathroom into a granny flat could increase the value of an existing dwelling by approximately 32 percent. For instance, for a house valued at $500,000, the addition of a granny flat has the potential to increase the property's value by around $160,000.

According to service.com.au, rents for granny flats range from $100 to $1,000 a week.

With granny flats now open for rental to anyone, several governments and other groups have been urging property owners to consider building or utilizing existing ones to help alleviate the current rental crisis.

This call to action has been heeded by many property owners. Data from Oneflare and Airtasker revealed a significant increase in requests for granny flat additions, rising by 67 percent over the past year in New South Wales alone.

While considering building or renting out a granny flat, there are numerous factors to take into account, including planning approvals, building permits, and tax implications. Additionally, there are insurance matters to consider, particularly landlord insurance, which provides financial protection against the unique risks associated with renting out property.

When you have a second dwelling on one property, securing appropriate landlord insurance becomes more complex. Let me explain using three possible scenarios, all based on the granny flat being used as a rental property, whether for long-term or short-term occupancy.

Note: These scenarios specifically pertain to the use of granny flats as rentals. If you're considering utilizing another form of secondary dwelling, such as a studio or 'Fonzie flat' (garage conversions) as a rental, please consult a member of our Expert Care team for guidance.

Scenario 1: Granny flat is located on the same site as the owner's primary residence.

As the granny flat is constructed at the same address as the primary residence, it is regarded as part of the main building, similar to sheds or fences. Consequently, building insurance for both the main residence and the granny flat must be obtained from the same insurer. However, it's essential to note that insurers may need to agree to this arrangement, considering that part of the property is being used as a rental.

It's important to be aware that a standard home and contents policy may not be suitable if the granny flat is being utilized as a rental. Typical home and contents policies often contain exclusions for properties used for income-generating purposes. Even if the insurer agrees to cover the property for rental purposes, it's typically done through a specialized landlord insurance policy, which adequately addresses the risks associated with leasing property, such as loss of rent or damage caused by tenants or guests.

Scenario 2: Granny flat is located on the same site as an investment property.

In this scenario, both the granny flat and the main property are utilized as rental properties.

If both properties are being used for the same type of tenancy, a single policy with building cover may be appropriate. This coverage could encompass financial protection for the building structures against various insured events, as well as cover for loss or damage to contents, legal liability, and provisions for loss of rent.

Scenario 3: Granny flat is on a separate title.

If the property has been subdivided, and the granny flat is situated on a separate title, meaning it has its own address, then a policy with building cover may be appropriate. The general rule is: one address equals one building insurance policy.

Cover:

Once a policy is issued for the granny flat, the coverage details are outlined in the policy documentation. When selecting a policy, it's important to consider various features, including:

It's worth noting that a standard home and contents policy typically does not offer coverage for tenant-related risks. Therefore, landlords should consider specialized landlord insurance policies that provide comprehensive coverage tailored to rental property needs.

Conclusion :

Utilizing a granny flat as a rental property can indeed generate a substantial income for owners and contribute to easing the current rental crisis. However, just like any other investment, it's crucial to ensure proper protection with the right landlord insurance. By safeguarding your investment with comprehensive insurance coverage, you can mitigate risks and enjoy peace of mind while maximizing the potential benefits of rental income.

Contact us for any type of real estate information.