Build a granny flat, rent it out, and you’ve added an income stream and value to your property without buying a second block of land. That’s the appeal — and it’s why “is a granny flat a good investment?” is one of the most common questions we’re asked. The honest answer: it can be one of the best-return additions to a home, but the numbers depend on your build cost, your rent, and your state’s rules. Here’s how to work it out.
The investment case in one line
A granny flat is one of the few improvements where you can estimate the return before you build, because both the cost and the likely rent are knowable up front. If the rent comfortably covers the cost of financing the build and then some, the maths works.
Rental yield — the number that matters
Rental yield is your annual rent as a percentage of what the granny flat cost to build. It’s the quickest way to judge the investment: gross yield = (weekly rent × 52) ÷ build cost × 100.
Worked example (illustration only)
A granny flat that costs $150,000 to build, rented at $450/week:
| Build cost | $150,000 |
| Weekly rent | $450 |
| Annual rent | $23,400 |
| Gross rental yield | ~15.6% |
| Less holding costs (rates, insurance, maintenance, mgmt ~20%) | ~$4,700 |
| Net annual income (before finance) | ~$18,700 |
| Net yield | ~12.5% |
Illustration only — not financial advice or a guarantee of rent. Yields vary widely by location, build cost and demand. Even after costs, a well-located granny flat commonly out-yields the same money left in the underlying house.
It’s not just rent — there’s capital value too
A compliant, separately-metered secondary dwelling can also lift your property’s value and its appeal to buyers who want dual income or multi-generational living. That capital effect is on top of the rent, though it’s harder to predict than yield.
Depreciation and tax (general information)
A new granny flat used to produce income can typically be depreciated — both the building and the fit-out — which may reduce the tax on the rent you earn. The rules are specific and personal, so get a quantity surveyor’s depreciation schedule and speak to your accountant. This is general information, not tax advice.
The costs to factor in before you get excited
Yield looks great until the costs land. Budget for: the build itself (see how much a granny flat costs), council/approval fees (see council approval), site works and connections, landlord insurance, ongoing maintenance, and property management if you won’t self-manage. Some states also restrict whether you can rent a granny flat to non-family — check your local rules, as this directly affects the investment.
Financing the build
Most owners fund a granny flat by borrowing against the equity in their existing home, or with a dedicated build loan. Which is cheaper depends on your equity and rate — we compare the two in granny flat loan vs home equity. When you’re ready to model your build against your equity, start your enquiry or call 1300 391 390 and we’ll help you structure the finance. Our granny flat finance hub covers your options, and you can browse granny flat designs and size rules too.
Granny flat investment FAQs
Is a granny flat a good investment?
Often, yes. Because you already own the land, a granny flat can produce a high rental yield relative to its build cost — frequently 10%+ gross in the right location — while also potentially lifting your property’s value.
What rental yield can a granny flat achieve?
Gross yields commonly land in the low-to-mid teens because the build cost is modest relative to the rent (e.g. a $150,000 build renting at $450/week is ~15% gross). Net yield after holding costs is lower but still typically strong.
Can I claim depreciation on a granny flat?
Generally a new income-producing granny flat can be depreciated on both the building and the fit-out, which may reduce the tax on your rental income. Get a quantity surveyor’s schedule and confirm with your accountant.
Can I rent out a granny flat to someone who isn’t family?
It depends on your state and council. Some jurisdictions allow renting a secondary dwelling to anyone; others restrict it. Check your local planning rules before you count on the rent.
How do I finance a granny flat investment?
Most people use the equity in their existing home or a dedicated build loan. The cheaper option depends on your available equity and interest rate. Little Home Loans can help you compare and structure the finance.
This article is general information only and does not constitute financial, investment or tax advice. Rental figures, yields and depreciation outcomes are illustrations and vary by location, build cost, demand and individual circumstances — confirm rent estimates locally and speak to a registered tax adviser. Little Home Loans operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, criteria, terms, conditions and fees.
