Granny Flat Investment Guide — Costs, Returns & Rules (2026)

A granny flat in Melbourne costs between $110,000 and $200,000 + GST depending on size. Here are the exact figures from our construction team (who build 100+ granny flats annually):

30m² Standard Studio: $110,000 + GST — one bedroom, open-plan living, kitchenette, bathroom. Earns $340–$360/week (or $370–$390/week with bills included). This is our most popular configuration.

60m² Two-Bedroom Unit: $160,000 + GST — two bedrooms, full kitchen, separate bathroom, living area. Earns $480–$500/week. Better suited for couples or small families.

Dual Living (2 × 30m²): $200,000 + GST — two separate 30m² studios on one lot. Earns $650–$700/week combined. Maximum rental yield strategy.

These prices include standard sewer connection (up to 10m), electrical cabling (up to 15m), standard dig depth (0.6m max), and 10m³ mixed concrete. Additional costs apply for rock removal ($300/m³), hard surface cutting ($200/linear meter), or deep sewer connections.

Read the denominator before you read the percentage. A 30m² granny flat renting at $380/week produces $19,760 a year. Against the $110,000 + GST build cost that is 18% — but that figure is a return on the incremental build spend only. It is not a property yield. The denominator deliberately excludes the land and the existing house that make the build possible, and it also excludes GST, holding costs, vacancy, management and any council or utility impost. Quoting it as a "yield" — which several Victorian granny-flat builders do — overstates the return on the money actually at risk by roughly three to four times. We publish it here labelled, because the labelled version is the useful one for deciding whether to spend the marginal $110,000; and we publish the whole-property number next to it, because that is the one that describes the investment.

The whole-property view, on our own data. Across the 212 granny-flat additions in our published dataset (n=345 total, settled Jan 2023 – Sep 2025, DOI 10.5281/zenodo.20095886), the median gross yield after works was 5.79%, on a median purchase price of $649,730 and a median granny-flat spend of $105,000. The 85 properties in the same dataset that received only a cosmetic renovation recorded a median gross yield of 5.16%. That 0.63-percentage-point difference is the honest measure of what the strategy did, and every row behind it is downloadable.

A worked whole-property example, with every input stated so you can check the arithmetic:

Before: $689,000 house, $600/week → $31,200 a year → 4.53% gross After a 60m² addition: capital deployed $875,000 ($689,000 + $160,000 + GST = $176,000 + approx. $10,000 permits and service connections). Combined rent $600 + $500 = $1,100/week → $57,200 a year → 6.54% gross

Gross means before land tax, management, insurance, maintenance, vacancy and interest — all of which are real and none of which are in that number. It is an illustration of the arithmetic on stated inputs, not a projection of what any particular property will earn.

On refinancing. Lenders in our experience have valued a completed, OC'd 30–60m² granny flat at a materially lower figure than the build cost in some cases and above it in others; the valuer's opinion is the valuer's, and it varies by lender, by suburb and by month. We cannot tell you what your lender will do, we do not recommend lenders, and we would treat any builder or agent who promises you a specific "as-if-built" valuation or a specific amount of releasable equity as a warning sign. Whether you can borrow against the improvement, and on what terms, is a question for a licensed credit assistance provider.

Usually no planning permit — but the exemption is narrower than most pages admit. The change was Amendment VC253, gazetted 14 December 2023 (not 2024, which is the date most granny-flat pages still carry). VC253 introduced the "small second dwelling" land-use term into the Victoria Planning Provisions and deleted the old "dependent person's unit".

What the planning scheme actually requires — all of these conditions, together:

• The lot is in the Residential Growth Zone, General Residential Zone or Neighbourhood Residential Zone (Clause 32.07 / 32.08 / 32.09). Outside those three zones the exemption does not apply.
• The lot is greater than 300m². This is the only lot-size number in the ordinance. Below 300m² you can still build — you just need a planning permit.
• The small second dwelling is 60m² or less in gross floor area.
• There is no more than one existing dwelling on the lot, and the second dwelling stays on the same lot (it cannot be subdivided off).
• No overlay independently triggers a permit. A Heritage Overlay, Bushfire Management Overlay, Special Building Overlay, Land Subject to Inundation Overlay or a restrictive covenant can each require a permit regardless of zone and lot size — check the actual title and planning property report, not a rule of thumb.
• A building permit is always required, whether or not a planning permit is.

No kinship requirement. VC253 removed the occupancy restriction that the old dependent person's unit regime carried. The dwelling can be rented to anyone — a family member or an unrelated tenant.

PremiumRea's own operational filter — 550–600m² and a side driveway wider than 3 metres — is a commercial rule of thumb, not a legal requirement. We apply it because below roughly 550m² the setbacks, the garden-area requirement and the crane-access geometry usually stop the build from paying for itself, and because a driveway under 3m forces manual material handling that adds materially to the cost. Plenty of sub-550m² lots are perfectly legal to build on. They are simply not lots we would normally recommend buying for this strategy. Do not read our filter as the law, and do not let anyone tell you a 400m² block in the GRZ needs a permit — it does not.

Occupancy Certificate (OC) is mandatory before legally renting; it issues in roughly 3 days once construction is complete and the surveyor has inspected.

Timeline: paperwork 1–2.5 months, construction approximately 3 months. Total from decision to rental income: 4.5–5.5 months.

Sources: Amendment VC253, Planning Victoria · City of Greater Dandenong — small second dwelling (responsible authority restatement of the Clause 32.08 test)

Our builder uses a 4-stage payment schedule:

• Deposit: 5% (e.g., $5,390 on a $107,800 build)
• Demolition stage: 35% ($37,730)
• Lock-up stage: 40% ($43,120) — when structural framing and roofing are complete
• Final payment: 20% ($21,560) — upon completion and OC

Each invoice has a 5-day payment deadline. Some lenders assess construction lending on an "as-if-built" basis, valuing the completed dwelling before it is built. Whether that is available to you, and at what assessed figure, is a matter for your lender and its valuer — PremiumRea holds no Australian Credit Licence and does not recommend lenders or loan products. Budget on funding the build.

Do NOT install a separate water/sewer meter. An independent meter costs $2,000–$3,000 AND doubles your council rate bills.

Instead, install an internal reader/sub-meter ($500–$1,000) and rent the granny flat "bills included" — adding $20–$35/week to the rent. This is simpler, cheaper, and actually increases your total rental income.

For electricity, share the main house connection and install a solar system with battery storage. This reduces overall utility costs while allowing you to build the bills into the rent price.