A garden flat or “granny cottage” is an asset you can use to generate an income. But if you don’t have an existing cottage, is it worth building one? We find out if the potential income justifies the cost.
Calculating the costs
A new building costs between R9 000 and R11 000 per square metre, says Helen Counihan-Greene, an architect who practises in Kalk Bay. This takes into account all aspects of the building, from the foundations to the fittings.
“Granny cottages tend to be at the higher end of the cost range, because everything is more compact – so you’ll have more walls, plumbing and countertops per square metre,” Helen says. “This estimate is for standard fittings like affordable taps and melamine counter tops, bearing in mind that you can spend R300 on something like a tap or a showerhead, or you can spend R1 300. If you want to go with high-end fittings, it will obviously cost you more.”
So, multiply the building cost per square metre by the size of your building area. Helen says a granny cottage is often the size of a double garage, or built on top of a garage, which is around 40 square metres, (6m x 6m internal space). Standalone cottages could be as small as 20-30 square metres for studios or bedsits, which may be less suitable for long term living.
Using 40 square metres as an example with costs of R11 000 per square metre, the building cost would be: 40 X R11 000 = R440 000.
If you are renovating an existing cottage or converting a double garage, the costs will be lower, as you will probably be able to use some existing walls, foundations, electrical and plumbing points and so on.
Can you save on costs by doing some of the work yourself? Helen says you can do the cosmetic changes such as changing tiles, painting or even changing out the sanitaryware. “Hardware stores and other suppliers are often hugely helpful and will share their knowledge and expertise, so ask and research!”
But when it comes to building, roofing, plastering, carpentry, tiling a floor or wall from scratch, and sometimes painting, she advises using an expert, unless you are skilled in these areas. For anything relating to plumbing and electrical, she says it is essential to use a registered plumber or electrician.
Calculating the returns
A building bond for a garden cottage is calculated in the same way as a regular bond. On a R440 000 bond, with no deposit, your monthly repayment would be R3 411, assuming a 7% interest rate and 20-year term.
Separate garden cottages can bring in anywhere between R3 500 and R10 000, depending on the area, how nice the cottage is and what features it has. For the purposes of this calculation, we’ve worked with an average of R5 000 as the rental you can earn. If you are doing your own calculation, search on local real estate sites or speak to local agents to get a sense of the cottage rentals in your area.
The difference between your bond repayment and your income would therefore be just over R1 500 per month.
Remember that rental income is not guaranteed, but if you have a long-term tenant and are in a desirable area you should be able to increase rent by a small percentage each year. Your bond repayment will be affected by fluctuations in the interest rate, which is currently low, so factor in a few interest rate increases when working out what a bond could cost in the years ahead.
“In most instances, garden cottages can be a great value-add to any property. An experienced real estate professional will know if there is a demand for garden cottages in the suburb and how much value it can add to your own home. You can ask them to prepare valuations on your home for both pre- and post-renovation to help you decide whether the conversion will add value,” says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
Keep in mind
There are many things to consider when you are building a cottage for income-generating purposes – some of which will add to or detract from the costs. Some of these are:
- Will you include electricity in the rental price or install a pre-paid metre?
- Will you be able to provide a separate entrance and parking for your tenant’s car?
- Will it be furnished or not?
- Will you include an alarm or other security features?
Have a plan
Helen says the biggest pitfall on any job, of any size, is rushing into it and not planning sufficiently. So, “plan, plan, plan and plan again – then do it!”
What about the Airbnb option?
Another way of generating income with a cottage (or even a nice room in your house) is through Airbnb. The benefits of going this route over a full-time rental are that you can decide when your cottage is available for rent and you are not tied to a tenant. Of course, on the flip side, there is more management involved in short term rentals and you will have to deal with the demands of “guests” rather than tenants. You are also responsible for cleaning and servicing the room.
Other than the costs of setting up the room, it costs nothing to list a property on Airbnb. Airbnb takes 3% from your fee as well as adding a percentage of up to 20% to the guest’s fee, and holds your money till the guest arrives, then pays it to you – that way you are both protected from dishonesty or cancellations. And you can decline a booking should one come through that you are unhappy about.
A cottage that will be successful on Airbnb should have all the positive features of a rental flat but should have an added “something special” – it should be attractive and stylish, well furnished, and in an area that would be appealing to a visitor.
You can charge anything you like for an Airbnb rental or you can let Airbnb benchmark your cost against other similar properties and adjust for demand. The frequency of bookings will depend on how competitively you are priced, and whether you receive good reviews from previous guests – but if you charge R400 a night for the room and have guests 15 nights a month, you’ll make R6 000.
Before you consider this option, investigate what other Airbnbs are listed in your area, what they are like and what they charge, to assess whether this is a realistic source of income for you.
The bottom line
Renting out a cottage is a great way to earn some extra income. If you build one from scratch, you will probably be able to cover your costs in the long term but do your research carefully first. Who knows, this could be the first steps you take towards building a property empire!
Posted February 22, 2018
Updated January 29, 2021