Creating a flat in the family home

Ian and Liz want to stay in the family home after they retire, but it’s a bigger place than they need. They‘ve thought about trading down to a smaller place, but that would involve a move away from friends and neighbours.

A builder friend suggests that it wouldn’t cost too much to add a bathroom to the house so that they can turn two of the bedrooms into a self-contained space that isn’t totally separate, but has its own access. The total cost, including redecoration, will be $15,000 and the rent for the space, according to a local real estate agent, will be about $160 a week.

Ian and Liz think that the numbers stack up quite nicely. The “pay back” period will be about two years (before tax) but, looking ahead, the extra income will be useful. The real estate agent also thinks it would add more than $15,000 to the value of the house.

Best of all, it means they‘ll have someone around the house, but on an independent basis. They will have to pay tax on the rental income and it may affect their eligibility for income-tested state benefits.