It is a fact of life, we are all going to age. Watching your parents age is never an easy situation, and finding an affordable care solution can be equally as challenging. It is important that they can maintain their independence in a warm and comfortable environment.
An increasingly popular option for consumers is a granny flat. In adapting your home to provide care for parents or in-laws can be a cost-effective solution for them to retain their independence and ensure you are close by to provide assistance. And of course, there is a side benefit of having a built-in house and babysitting service.
When building a granny flat it is most often thought of as a separate dwelling, but they can also be a renovation to your existing home. Whichever way you decide to proceed, the granny flat cannot be on a separate ownership title or sold separately. The more common arrangement is for the parent to contribute to the costs with money or assets. This is often referred to as granny flat interest.
It is important to understand the pros and cons of building a granny flat before your decide this is the option for you.
Advantages of building a granny flat:
– More cost effective than buying a house, flat or entering an aged care facility
– It may add capital value to the existing primary residence
– Majority of cases it is a positively geared investment
– You are close by to monitor the health and well-being of your parents
– Having your parents close can strengthen generational ties and avoid isolation
– NSW, WA, NT, TAS & ACT* allow granny flats to be rented and therefore become and income stream when they are no longer required by your parents
Disadvantages of building a granny flat:
– Unable to be sold separately
– Potential to overcapitalise
– Can affect pension entitlements (seek advice prior to proceeding)
– Family conflict may occur with the change of circumstances
– It cannot provide an income stream in QLD, VIC & SA* once the flat is no longer required by your parents
It is important to have any agreements drawn up in a family agreement. This Deed of family agreement will outline intentions and expectations which will protect all parties involved. Not only will the contributions become clear and therefore enhance the likelihood of retaining the pension, but it will clearly outline the level of physical care and support you are willing to offer. The agreements covers changes in circumstances such as relationship breakdown, conflict between family members, financial arrangements and estate planning issues.
The cost of obtaining independent legal advice will be significantly less than resolving legal disputes down the track. Starting off with a clear arrangement will reduce the likelihood of future family disunity and fractured relationships.
If you would like to discuss your situation including borrowing capacity give us a call today
*As at October 2017