Granny Flats: How Dual Rental Income Is King

You’ve heard it all before, and you’ll likely hear it for years to come; granny flats are in. That’s right: latest reports show that over 10,000 granny flats were built in Australia in 2018, and numbers have continued to climb with around 6,000 of them built in NSW alone.

In a country of bullish house prices and aging populations, a granny flat can offer more than one benefit to homeowners. These cost-effective add-ons make for reliable and steady dual incomes, and they’re often cheaper than buying into a retirement complex, not to mention the general real estate market.

Laws & regulations from state to state

Just because your friend has built a granny flat in their backyard, doesn’t mean you’re legally allowed to do the same. Each state & territory work to their own set of rules when it comes to a secondary dwelling on your property. Some states restrict dwelling sizes, and others impose restrictions on minimum land size. You might also find your state requires your granny flat to be placed a certain distance away from your side & back boundary fences and the other existing dwelling on your property.

NSW, WA, NT, ACT & TAS: There are reasons why there are far more granny flats built in these states, particularly in NSW alone, than any other Australian state. For one, laws and regulations that permit homeowners to build a second dwelling in their yard, are comparatively low. The Housing Industry Association (HIA) believes these laws were put in place, to lessen the burden nest-leavers face, of ever-increasing real estate prices. However, studies have shown a total of 23% of all granny flats in these states produce incomes, according to Gateway.

VIC, QLD and SA: It’s not altogether impossible for a homeowner in these states to build a granny flat on their property, but local governments do impose heavy restrictions on who lives in them. Only immediate family members or a “dependent person” such as a teenage child or elderly parent can occupy the granny flat. In some cases, homeowners have been ordered to remove or demolish their granny flat when the occupant has left home or passed away.

Before making any arrangements, it’s best to seek planning advice from you local council so you can rest assured you’re working within your state’s guidelines.

How a granny flat can earn you money

According to CoreLogic’s 2019 Granny Flat Report, property investors view granny flats as a handy add-on to increase your rental yields by 27%.

Let’s say you’ve spent $95,000 constructing a granny flat on your investment property, located in a sought-after area which is expected to earn you around $450 a week in rental income. The national median rent for Australia at the end of 2019 was $435 per week. Now compare that to an investment property purchase of $400,000 that earns you around the same amount of rent per week.

Building a second dwelling on an investment property, also gives you a very real chance of achieving a positive cashflow property, potentially eliminating the need for you to cover any shortfalls between the mortgage & the rent you receive. Upon the sale of your property, you’ll enjoy a higher resale value, which will in turn, maximise your equity in the property. There’s additional tax depreciation benefits too.


For homeowners, the same CoreLogic Granny Flat 2019 report states that granny flats can boost the value of your home by 30%. If you live in an eligible state and you’re facing skyrocketing living costs, or you’re starting to feel the brunt of unbearably high mortgage repayments and outgoings, a dual income property can provide you with some much-needed relief.

On the other hand, your kids might have flown the coop, and there’s little need for the size of the current house you’re in. In which case, you might opt to move into the granny flat and rent your main house out for a higher return. Short term leasing sites like Stayz and Airbnb give you the option of testing the waters without diving headfirst in unknown territory.

Granny flats offer significant tax benefits too. You can claim depreciation as an expense, and if you need to borrow money for the build, the interest on what you borrow will be tax deductible. It’s essential you clarify this with a tax expert as you may have to pay other costs like capital gains tax.

Though the granny flat concept was born from the desire to accommodate elderly parents close by, they’re an attractive option for homeowners and investors as a source of dual income in today’s market. Make the best use of your backyard, turning assets into opportunities, where you’ll start to see the fruits of your labour come to life.

13 Responses to “Granny Flats: How Dual Rental Income Is King
  1. Hi Cherie,

    I love the financially practical idea of a Granny Flat! It makes common sense and financial sense in your Blog above. Do the building company you use to build your granny flats in NSW also build in Queensland as I would be interested if they did to get a quote to replace our current ‘Granny Flat/Studio’? I did contact them last year to ask them (after the training in Sydney) and at that time they weren’t building in Queensland. The main house on the site in Scarborough, Brisbane only has 2 bedrooms so we thought that if we took the old but gorgeous tiles off the ‘Studio’ we could extend the main house to create that third bedroom adding significant $ value to that. We would then need to replace the ‘Studio’ roof and perhaps even completely knock the ‘Studio’ down and replace it with something a little more up-to-date and stylish while adding increased value to both the main house and the ‘Studio’. The stylish Granny Flats that you’re currently using in NSW are really smart, practical and affordable so if they were to branch out into other States we would be definitely interested in talking to them again? Warm regards Jules & Mark

    1. Hi Jules,

      Unfortunately my NSW granny flat builders dont have any interstate branches. I did ask if this was a possibility for my students but it was a NO! C x

  2. If the family home contract is signed by both partners. Does that mean it automatically is 50% share each?
    If so, when renting out the granny flat, does the Rental Contract with the property agency, legally, have to be in both names as well?
    What’s the best way to minimise tax when renting out the granny flat?

    1. Hi Justine,

      1) I presume you’re referring to the granny flat building contract? If signed by 2 people, no it doesn’t automatically mean 50% share each. Its the Contract of Sale for the property ownership and whether that Contract is ticked as “Joint Tenants” or “Tenants in Common”.
      2) No, a rental contract can be in 1 or 2 homeowners names.
      3) Get a good property accountant, not a general tax accountant who knows how to claim all available property deductions.
      Hope this helps. C x

  3. Hi there, as my block of land is 1863 square metres one would think it is easy to build a granny flat…not so! Because my block is a very strange shape, it is difficult to build the “granny” to the side of the block and due to regulations makes the only place is smack in the middle of the yard where the pool is located. Soooooo! I challenged to local council and said ..OK.. how about a new wing on my house with three bedrooms and 2 bathrooms and is along one boundary… problems. AND it will be about $30k more than a Granny flat yeilding more rental potential.

    1. Hi Cazandco, yes planning laws are sometimes hard to work with but it sounds like you’ve managed to get a good result. C x

  4. i am in Mulgrave, Victoria 3170. i am interested in getting a building permit for a 3mW x 6mL outbuilding built next to the 5mWx6mL garage, at the end of the driveway which is at one side of the land. i plan to add a 3mW x 3.9mL bar on the other side of the outbuilding. There appears to be two options to make this 60 odd m2 building to be habitable. One option is for it to be a second dwelling and the other is for it to be an extension. i could be wrong, but i believe the first option is not possible because a second dwelling means additional car park spaces and enough land at the back for the car to turn so that it would come out of the property head first. i have drafted a plan with a passsgeway between this 60 odd m2 s building and the house for the second option. Can you advice, on cost etc?

    1. Hi Koon,

      Your best bet is to speak to your local council first to determine if you’re allowed to build what you want to do. Once all your approvals are in place, you’ll need to source a local builder who will cost everything up for you in a formal quote / building contract in accordance with all your specifications. I hope this helps. C x

  5. Great content! Super high-quality! Keep it up! 🙂

    1. Thanks so much AffiliateLabz. C x

  6. When you do your granny flats, do you usually put up a fence between the main house and granny flat? Are there otherwise privacy concerns if the tenants of each are strangers?

    1. Hi Danielle – I always install fencing to get a complete separation from the main house to the granny flat. As I rent (not sell) most of my properties, I also do this so all my tenants have complete privacy in their homes but also to migitate risk in every way possible. C x

  7. Great article Cherie – thank you for all the wonderful information you share. X

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