Inside 5 Donnelly Court: How a $110K Granny Flat Turned a Single House Into a Dual-Income Machine

5 Donnelly Court sits on a quiet cul-de-sac in Melbourne's southeast. From the street, it looks like every other 1990s brick veneer in the area — three bedrooms, single garage, front lawn that could use a mow.

But walk around the side, past the 3.5-metre access gate, through to the backyard, and you'll find a second dwelling that most neighbours don't even know exists. A 60-square-metre granny flat with its own entrance, its own kitchen, its own bathroom, and its own tenant paying $370 a week.

Combined with the main house renting at $480 a week, this property generates $850 per week in total rent. The owner paid $640,000 for the house and $110,000 to build the granny flat. That's $750,000 all-in, producing $44,200 a year.

Gross yield: 5.9%. Cash-on-cash ROI on the granny flat build alone: 17.5%.

I walked through this property last month and documented everything. Here's exactly what was built, what it cost, and what went right.

The property before the granny flat

The main house is a 1993-built brick veneer — three bedrooms, one bathroom, open-plan kitchen and living area. Nothing fancy. The vendor had lived in it for 22 years and maintained it well enough that we didn't need to do a major renovation.

What sold us on 5 Donnelly Court wasn't the house. It was the block.

665 square metres. Flat as a cricket pitch. 3.5-metre side access on the left — wide enough for a small truck to drive building materials straight through to the backyard. The rear boundary was 18 metres wide, which gave us plenty of room for a two-bedroom granny flat without breaching council setback requirements 1.

The dwelling footprint of the main house occupied roughly 160 square metres, including the garage. That left over 500 square metres of usable land at the rear and sides. We only needed about 65 square metres for the granny flat footprint (including a small covered porch), which kept us well within the 35% site coverage limit that most southeast councils impose 2.

Crucially, there was an existing sewer line running along the side boundary. Connecting the granny flat to sewer cost $3,200 instead of the $8,000-$12,000 you'd pay if you needed a new connection point. That single factor saved us nearly $9,000.

What we built: specs and layout

The granny flat at 5 Donnelly Court is a 60-square-metre, two-bedroom, one-bathroom dwelling. Here's the breakdown:

Layout:

• 2 bedrooms (11sqm and 9.5sqm)
• 1 bathroom with shower, toilet, and vanity
• Open-plan kitchen and living (18sqm)
• Internal laundry cupboard with washing machine taps
• Small covered entry porch (5sqm)

Construction specs:

• Timber frame on concrete slab
• Colorbond roof to match the main house
• Double-glazed windows throughout
• R4.0 ceiling batts, R2.5 wall batts [3]
• Split-system reverse-cycle air conditioner
• Electric hot water (instantaneous)
• Standard kitchen with laminate benchtops, 600mm oven, rangehood
• SPC vinyl plank flooring throughout
• LED downlights, smoke alarms, and safety switches

What we deliberately didn't include:

• No gas connection (electric everything — saves $4,000 on gas line extension)
• No separate letterbox (shares with main house to maintain 'ancillary dwelling' status)
• No second driveway or carport (the granny flat tenant parks in the shared driveway)

The total build cost was $110,000 plus GST. Our construction timeline was 14 weeks from slab pour to handover, though council approval took another 8 weeks before that 4.

Council approval: what actually happened

This is the part that terrifies most investors, and honestly, it shouldn't.

In Victoria, a granny flat (formally called a 'dependant person's unit' or, under newer provisions, a 'secondary dwelling') on a lot over 500 square metres in a General Residential Zone generally falls under a planning permit pathway rather than a full planning scheme amendment 1.

For 5 Donnelly Court, the process went like this:

Week 1-2: Our drafting team prepared site plans, floor plans, elevations, and a shadow analysis showing the granny flat didn't overshadow the neighbour's habitable rooms beyond the allowable limit.

Week 3: Lodged with council. Fee was $1,280.

Week 4-6: Council sent the plans for referral to their internal teams — urban design, engineering, drainage. No objections from neighbours were required because the dwelling was compliant with all ResCode standards 5.

Week 7-8: Permit issued with three conditions: connect to reticulated sewer, install a rainwater tank (minimum 2,000 litres), and plant one canopy tree in the front yard.

Week 9-22: Construction.

Total timeline from decision to first tenant: about 5.5 months. That's faster than most people expect, and a lot of the reason is that we've done this process dozens of times. We know exactly what council wants to see in the plans, so we don't get requests for further information that drag things out.

The biggest delay risk in any granny flat project isn't council — it's the building surveyor inspection schedule. If your builder doesn't book inspections early, you lose weeks waiting for the next available slot. Our construction team books the frame inspection before the frame is even up. It sounds aggressive, but it works.

The rental numbers in detail

Let me lay out the full income stack for 5 Donnelly Court as it stands today.

Main house (3 bed, 1 bath):

• Rent: $480/week
• Tenant: young couple, both working, no pets
• Lease: 12-month fixed, started March 2020
• Tenant quality: excellent — 35% rent-to-income ratio, verified employment, clean TICA

Granny flat (2 bed, 1 bath):

• Rent: $370/week
• Tenant: single professional, works locally
• Lease: 12-month fixed, started May 2020
• Tenant quality: strong — 28% rent-to-income ratio, previous rental history with no breaches

Combined weekly rent: $850 Annual gross income: $44,200 Gross yield on total investment ($750K): 5.9%

Now compare that to what this property would earn without the granny flat. A 3-bed, 1-bath house on 665 square metres in this pocket rents for $450-$490 per week. Call it $470 as a midpoint. That's $24,440 per year on a $640,000 purchase. Gross yield: 3.8%.

The granny flat cost $110,000 and added $19,760 per year in rental income (the $370/week from the granny flat tenant). That's a 17.5% return on the build cost, every year, compounding through rising rents 6.

I challenge anyone to find a better risk-adjusted return in a savings account, the share market, or any other asset class in 2020. You won't.

What could go wrong (and what we planned for)

Dual-income properties aren't without complications. Here are the three risks we considered and how we mitigated each one.

Risk 1: Tenant conflict. Two households sharing a driveway and outdoor space can create friction. We addressed this by installing a 1.8-metre Colorbond fence between the main house backyard and the granny flat entrance area. Each tenant has their own defined outdoor space. The shared driveway has marked parking spots. So far, zero complaints.

Risk 2: Higher maintenance. More tenants means more wear and tear. We budgeted 8% of gross rent for maintenance and repairs, compared to the typical 5% for a single dwelling 7. Year one actuals came in at 6.2% — lower than expected, partly because everything is new in the granny flat.

Risk 3: Vacancy. If the granny flat sits empty, the investor is still paying the mortgage on a $750K property with only $480/week coming in. We mitigated this by building a two-bedroom granny flat rather than a one-bedroom. The rental demand for two-bedroom dwellings in Melbourne's southeast is substantially stronger than for studios or one-bedders — vacancy rates for 2-bed units in the Casey LGA sat at 1.3% in early 2020 8.

The fourth risk — the one most people forget — is insurance. Standard landlord insurance policies don't always cover a second dwelling on the same title. We use a specialist insurance broker who writes policies covering both the main house and the granny flat under a single policy, with separate liability for each tenancy. Premium runs about $2,800 per year, or $54 per week. Still well within budget.

Would I do it again?

Without hesitation.

5 Donnelly Court is the kind of investment I wish I'd started building a portfolio of ten years ago. The numbers are clean. The risks are manageable. The demand for affordable two-bedroom rentals in Melbourne's southeast isn't going anywhere — population growth in the City of Casey is running at 3.2% per year, which is double the Melbourne average 9.

The granny flat strategy isn't sexy. It doesn't involve flipping, or developing luxury apartments, or timing the market. It's a boring, repeatable, cash-flow-positive model that works in any interest rate environment because the rental yield covers the mortgage from day one.

Our team has built over 40 granny flats across Melbourne's southeast. The average build cost is $110,000 for a 60-square-metre, 2-bed dwelling. Average additional rent is $350-$400 per week. Average time from purchase to dual-income status is 6 months 10.

If you're sitting on a property with 600-plus square metres and side access, or you're looking to buy one, the maths on a granny flat addition is hard to argue with. I've run the numbers hundreds of times. They keep working.

5 Donnelly Court is proof. Walk it yourself if you don't believe me.