A Complete Start-to-Finish Guide to Granny Flat Investment Properties

If you’ve been considering ways to boost your property investment portfolio, a granny flat might just be the opportunity you’ve been looking for. These compact secondary dwellings have exploded in popularity across Australia, and for good reason.

In this guide, we’ll walk you through everything you need to know about investing in granny flats in Australia – from initial planning considerations to finding the right tenants and maximising your returns.

Why Granny Flats?

Let’s start with the basics.

A granny flat (or secondary dwelling) is a self-contained living space built on the same lot as an existing property. These compact homes typically range from 35m² to 90m² and include all the essential amenities of a standalone property—bedroom(s), bathroom, kitchen, and living area.

Despite their traditional name, granny flats aren’t just for grandparents anymore. They’ve evolved into versatile spaces that appeal to a wide range of tenants, from young professionals and university students to small families and remote workers.

• Skyrocketing property prices and a national rental crisis have made traditional property investment harder to access and less lucrative for many Australians.
• Granny flats offer a low-cost, high-yield investment. Rental yields often exceed 7%, outpacing the 3–5% typical for standard investment properties.
• Government incentives and relaxed planning laws have made it easier than ever to build and rent out granny flats, especially in states like NSW.
• They provide flexibility–use them for rental income, family accommodation, a home office, or even a creative studio.

Granny Flats vs Traditional Investment Properties

Let’s break down the numbers to see why granny flats are so appealing:

Factor	Granny Flats	Traditional Investment Properties
Average Build Cost	$150,000–$250,000	$600,000+
Rental Yield	7–12%	3–5%
Time to Break Even	7–10 years	15–20 years
Maintenance Costs	Low	Moderate to High

With a much lower entry cost and faster return on investment, granny flats make it easier to start generating passive income,often recouping costs in a decade or less. Plus, their smaller size and new-build status mean lower ongoing maintenance.

Where’s the Demand? The Market in 2025

The demand for granny flats is at an all-time high. In 2024, searches for granny flats on realestate.com.au surged by over 50% compared to the previous year, reflecting a growing appetite for dual living and affordable rental options.

CoreLogic estimates there are more than 655,000 properties suitable for granny flats across Australia’s three largest capitals, with Sydney alone boasting over 240,000 eligible sites.

The top regions for granny flat potential in Sydney (2024) are:

• Central Coast: 41,569 potential sites
• Northern Beaches: 19,884
• Hornsby: 18,344
• Blacktown: 17,909
• Ku-Ring-Gai: 14,617

Legal and Planning Considerations

Before you get too excited about those impressive returns, it’s essential to understand the regulatory landscape:

Council Regulations

Each local council has its own set of rules governing granny flat construction. These typically cover:

• Maximum size (usually between 60m² and 90m²)
• Height restrictions
• Setbacks from boundaries
• Privacy considerations for neighbours
• Parking requirements

The good news is that many Australian states have introduced “complying development” pathways for granny flats that meet standard criteria, significantly streamlining the approval process.

State-by-State Regulations

Regulations vary considerably across Australian states:

Victoria

Victoria allows homeowners to build secondary dwellings up to 60 square meters in their backyards without planning permits. This change has opened opportunities for many property owners.

New South Wales

NSW has long supported granny flats, permitting them on lots over 450 square meters with a maximum size of 60 square meters. The state continues to encourage their development to address housing shortages.

Western Australia

In January 2024, WA removed the requirement for planning approval for compliant granny flats up to 70 square meters and scrapped the previous minimum lot size requirement of 350 square meters.

South Australia

In February 2024, SA proposed a Granny Flat Code Amendment to fix mismatched planning acts. Previously, ancillary accommodations required shared amenities with the main house, but changes aim to allow more independent living spaces.

Looking for dual occupancy investment property in Brisbane, Melbourne, or Geelong? At Dual Dwelling Investments, we specialise in helping investors like you navigate the exciting world of dual occupancy investments in this area. We provide end-to-end support from consultation to settlement. Get in touch today.

Design and Construction

The design phase is where you can significantly influence both construction costs and rental appeal:

Space-Efficient Design Principles

When planning your granny flat, focus on:

• Open-plan living areas that feel spacious despite limited square footage
• Strategic storage to maximise usable space
• Indoor-outdoor flow to make the dwelling feel larger
• Natural light to enhance the sense of space

Quality vs. Cost Considerations

It’s tempting to cut corners to minimise upfront costs, but remember that higher quality:

• Attracts better tenants willing to pay premium rents
• Reduces ongoing maintenance expenses
• Contributes to greater capital appreciation
• Results in fewer vacancies

Hiring the Right Builder

Your choice of builder can make or break your investment. Look for:

• Experience specifically with granny flat construction
• Understanding of local council requirements
• Fixed-price contracts with clear milestones
• Strong references from previous clients
• Appropriate licensing and insurance

Finding and Managing Tenants

Once your granny flat is built, it’s time to generate returns:

Target Market Identification

Different locations and property types appeal to different tenant demographics:

• Young professionals: Prioritise modern finishes, quality appliances, and proximity to transport
• Students: Focus on fast internet, study spaces, and access to universities
• Downsizers: Emphasise accessibility features, low maintenance, and security
• Home office seekers: Highlight separate entrance, dedicated work area, and technology infrastructure

Setting the Right Rent

Rental rates vary significantly across Australia. According to Rent.com.au, the national average weekly rent for granny flats is:

• Studio/1 bedroom: $350
• 2 bedrooms: $450
• Premium locations in Sydney and Melbourne: Up to $600

To maximise returns while minimising vacancies, research comparable properties in your area and consider setting your rent just below similar offerings to attract quality tenants quickly.

Self-Management vs. Property Managers

While managing your granny flat yourself saves on agent fees (typically 5-8% of rental income), professional management offers significant advantages:

• Rigorous tenant screening processes
• Legal compliance expertise
• Efficient maintenance coordination
• Buffer between you and tenants for difficult conversations
• Access to better insurance rates

Common Mistakes (and How to Avoid Them)

Even the most promising investments come with risks. Here’s how to navigate the most common challenges:

Overcapitalisation

It’s easy to get carried away with premium finishes and features, but not every addition will deliver a return. Focus your budget on elements that genuinely impact rental value:

• Quality bathroom and kitchen fixtures
• Energy-efficient appliances
• Effective insulation and climate control
• Durable flooring and cabinetry

Tenant Turnover

High tenant turnover can quickly erode your returns through:

• Vacancy periods with no income
• Marketing costs to find new tenants
• Wear and tear from move-ins and move-outs
• Additional cleaning and maintenance

To minimise turnover, prioritise tenant satisfaction through responsive maintenance, reasonable rent increases, and respect for privacy.

Neglecting Insurance

Standard homeowner’s insurance often doesn’t adequately cover rental properties. Ensure you have:

• Landlord insurance covering both property damage and loss of rental income
• Public liability coverage for tenant injuries
• Coverage for tenant-caused damage beyond the bond amount

Taking the Next Step

Granny flat investments offer a compelling opportunity to boost your property portfolio’s performance with relatively modest capital outlay. With potential yields of 15-20% and significant capital appreciation, they represent one of the most attractive property investment options in today’s Australian market.

At Dual Dwellings Investment, we specialise in turning granny flat investment opportunities into reality. Our team of experts can guide you through every step of the process:

• Initial feasibility assessment for your property
• Council approval navigation
• Quality construction with fixed-price contracts

With hundreds of successful granny flat projects completed across Australia, we understand the unique challenges and opportunities in this specialised market.

Ready to explore how a granny flat could transform your investment property’s performance? Contact our team today for a no-obligation consultation and property assessment. Call us today or visit our website to book your free investment strategy session.