Rental returns are one of Australia’s favourite ways to bolster retirement funds and create passive income. But how do granny flats stack up against house-and-land investments?
DC House Granny Flats
Rental income has long been one of Australia’s favourite ways to build wealth, top up retirement savings, and create passive income streams. But how do granny flats compare to traditional house-and-land investments when it comes to Granny Flat Investment Strategies?
We’ve designed and built everything from full-sized homes to modern one-bedroom granny flats — and we’ve seen firsthand how both investment options perform.
While both can deliver solid returns, granny flat investment properties come with a few financial advantages that deserve attention. Let’s compare how they stack up in terms of costs, yields and capital growth.
Note: For easy comparison, we’re using 3-bedroom homes and 3-bedroom granny flats in the examples below.
Comparing Purchase Costs
Granny flats come in all shapes and sizes, from compact studios to modern 3-bedroom homes. Most have a small footprint, with 80m² the standard maximum size unless you’ve got approval for something larger.
Here’s how the numbers look:
- As of July 2023, the median house price on the Gold Coast was around $655,000, with units sitting at $672,000 according to CoreLogic data.
- A Granny Flat Investment, fully designed and built from scratch, generally costs between $90,000 and $170,000, depending on size and features.
When you buy a separate investment property, you’re paying for both the house and the land. You’ll also have additional costs like building and pest inspections, stamp duty, legal fees and mortgage registration.
With Granny Flat Investment Strategies, these extra costs are minimal. You might need to pay for permits and building inspections, but your existing land already takes care of the rest.
Comparing Interest Charges
Financing is another key factor in Granny Flat Investment Strategies.
A standard investment property loan attracts regular interest charges — plus you may need to pay Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80% of the property’s value.
With a Granny Flat Investment, you might be able to tap into the equity in your current home to fund the build, especially if you can’t pay for it upfront. That’s a far smaller financial burden than taking out a whole new mortgage.
Here’s a quick comparison using today’s average interest rate of 6.5% over 30 years:
- 3-bedroom house & land: $800,000 loan at 6.5% = $1,350 per month.
- 3-bedroom granny flat: $150,000 loan at 6.5% = $614 per month.
A well-structured Granny Flat Investment Strategy can make a significant difference to your monthly outgoings.
Comparing Rental Yields
Ongoing extra income is the key to any investment, so let’s compare rental returns.
- According to SQM Research, the average rent for a 3-bedroom house is around $864 per week, while a 2-bedroom unit sits at $704 per week.
- For secondary dwellings, we typically see rental returns in the $450-$550 range, depending on location, size and features.
If we break down the numbers for 3-bedroom dwellings, this is how the yields compare:
| Property | Purchase Cost | Weekly Rent | Yield |
| House & land | $800,000 | $864 | 6.88% |
| Granny flat | $170,000 | $450 | 13.8% |
That’s one of the key strengths of investing in a granny flat — they deliver exceptionally high yields for a relatively small upfront cost.
Comparing Depreciation and Ongoing Costs
Depreciation is another bonus with adding a granny flat. Like any rental property, you can claim depreciation on a granny flat used for investment purposes.
In Australia, granny flats depreciate at a minimum rate of 2.5% per year. According to BMT Quantity Surveyors, the average 5-year depreciation deduction for a granny flat sits around $23,713.
The depreciation rate is the same for new investment properties, but you’ll often miss out on some deductions if you buy an older home.
There’s also a big bonus if you build a granny flat on your own property — you won’t pay capital gains tax on the flat when you sell your main home (provided it meets the criteria for the main residence exemption).
Smart Investments for Your Family & Future
Comparing Resale Value and Capital Growth
When looking at long-term property investment strategies, it’s worth considering how they affect your overall property value.
The last detailed report from CoreLogic (2019) showed that properties with granny flats sold for around 30% more than similar homes without them. With housing shortages and rising demand for affordable rentals, it’s safe to say that figure is still relevant — and probably even higher.
A property with a secondary dwelling appeals to a broad range of buyers — from investors looking for immediate rental income to families wanting space for teenagers, elderly parents or even a home office. More demand usually equals better sale prices.
Other Considerations
Of course, there are advantages to standalone investment properties too.
- You can sell an investment property later to fund retirement or new investments — something you can’t do with just a granny flat.
- Once the mortgage is paid off, a full-sized investment property will typically bring in more rent each year than a granny flat.
That said, if you’re looking for Granny Flat Investment Strategies that deliver strong rental yields for a relatively small outlay, granny flats are incredibly hard to beat.
