Real Walkthrough: This $600K House Just Hit 6% Yield After We Added a Granny Flat

I love site visits. There's something about standing on the actual property, looking at the actual granny flat, hearing the actual tenant next door mowing their lawn, that makes the numbers feel real in a way that a spreadsheet never does.

This particular property is at 10 Meredith Street (not the real address, for the client's privacy). Southeast Melbourne. Purchased twelve months ago. And the transformation from a single-income property to a dual-income machine is exactly why we do what we do.

The purchase

Client bought this for approximately $600,000. Standard three-bedroom weatherboard on a 620-square-metre block. Side driveway was 3.2 metres wide — just over the 3-metre minimum we require for crane truck access and future development potential 1.

The house itself was liveable but tired. 1980s build, original kitchen, carpets that had seen better decades. Not a knockdown candidate — the bones were good. Brick veneer, stump foundations (which we prefer over slab because stumps are cheaper to repair), roof was fine.

We did a light cosmetic reno on the main house: paint throughout ($5,200), SPC flooring to replace the carpet ($4,800 at $62/sqm), and new Deadlocks on all external doors to meet Victoria's Minimum Rental Standards ($600). Total spent on the main house: $10,600 2.

Rented the main house within two weeks at $480 per week. Solid three-bedroom in a suburb where the median rent was sitting around $450-$470. Our leasing team pushed slightly above median because the fresh paint and new floors made it present well above comparable listings.

The granny flat build

While the main house was being tenanted, we kicked off the granny flat paperwork.

The spec: 30 square metres, one bedroom, open-plan kitchen and living, bathroom with shower, toilet and vanity. Fibre cement weatherboard cladding (James Hardie Linea series), Colorbond roof in Monument, SPC flooring throughout, double-glazed aluminium windows, and a 190-litre heat pump hot water system 3.

Total build cost: $110,000 + GST. That's our standard pricing for a 30-square-metre granny flat, all-in, covering construction, labour, and basic connections 1.

On top of that, the client paid:

• Soil test: $4,400
• Building Permit (via Building Surveyor): $3,000
• Builder's insurance: $5,500
• Minor site prep (removing an old shed and clearing vegetation): $2,000

Grand total for the granny flat, including all ancillary costs: approximately $125,000.

Timeline: paperwork took six weeks (we started the soil test during the main house renovation to save time). Construction took three months. First tenant moved into the granny flat exactly 4.5 months after settlement on the main house.

We rented the granny flat at $370 per week, including bills. That's consistent with our standard expectation for a 30-square-metre studio in the southeast — $340-$360/week base rent plus $30/week for bills (electricity, gas, water) bundled in 1.

"We don't install separate utility meters for granny flats," says Joey Don, Co-Founder & CEO at PremiumRea. "Official meter installation costs $20,000-$30,000 and you cop a second set of council rates. We install a $500-$1,000 sub-meter reader instead, estimate bills at $30 per week, and bundle it into the rent. The tenant gets simplicity. The landlord gets higher effective rent. Everyone wins."

The numbers at month 12

Let me lay out where this property sits exactly one year after purchase.

Capital position:

• Purchase price: $600,000
• Main house reno: $10,600
• Granny flat (all-in): $125,000
• Total invested: $735,600
• Current bank valuation (desktop, post-OC): $830,000
• Equity gain: approximately $94,400

That $94K includes both natural market appreciation (the suburb has moved roughly 8% in 12 months) and the valuation uplift from the granny flat. Our rule of thumb: a $110K granny flat adds roughly $150K to a bank valuation once the OC is issued 4. This one tracked almost exactly to that estimate.

Cash flow position:

• Main house rent: $480/week = $24,960/year

• Granny flat rent (incl. bills): $370/week = $19,240/year

• Total rent: $850/week = $44,200/year

• Mortgage interest (80% LVR on $600K at 6.5% IO): $31,200/year

• Council rates: $2,100/year

• Land tax: $1,950/year

• Insurance (building + landlord): $2,300/year

• Water service charge: $650/year

• PM fees (6.9% + GST for dual occupancy): $3,356/year

• Maintenance allowance: $1,500/year

• Total costs: $43,056/year

Net cash flow: +$1,144 per year. Positive. Not by a lot — roughly $22 per week. But positive from year one, before any further rate cuts.

Gross yield on purchase price: $44,200 / $600,000 = 7.37%. Gross yield on total invested: $44,200 / $735,600 = 6.01%.

That 6% on total cost is the number I care about. It means the property covers all its own costs and generates a small surplus. When the RBA cuts again (and markets expect it by late 2025), this property will throw off $3,000-$4,000 positive per year 5.

What I noticed on the walkthrough

Standing in the backyard, a few things jumped out.

The granny flat looks solid. Colorbond roof hasn't faded, weatherboard cladding is clean, the small front porch (1 metre by 2.8 metres of concrete with a disability-access ramp, as required) is practical without being excessive 3.

The separation between main house and granny flat is about 4 metres — well above the 1-metre minimum setback. That distance matters for tenant quality. When two households share a block, the further apart the dwellings are, the less friction you get. No noise complaints, no arguments about the shared driveway.

The tenant in the granny flat is a single professional in his forties. Works in logistics, relocated from regional Victoria. Pays on time, keeps the place spotless. That's the tenant profile we see most often in 30-square-metre granny flats: single working adults who want a small, affordable, self-contained space without housemates.

One thing I'd do differently if we were building this again: I'd orient the granny flat entrance to face the side fence rather than the main house. Creates more psychological separation. Minor detail, but our newer builds have adopted this approach.

The main house tenants are a young couple, both nurses. They appreciate having a quiet neighbour out back rather than an empty yard that attracts possums and weeds. The dual-tenancy dynamic here is genuinely symbiotic.

Should you replicate this?

If you're considering a granny flat addition in Melbourne, here's my honest assessment.

The strategy works when four conditions are met:

1. Block is 550-600+ square metres with a side driveway wider than 3 metres. Without the driveway width, the crane truck can't access the rear and your build cost escalates or becomes impossible 1.

2. No sewer easement running through the middle of the rear yard. An easement at the very back boundary is fine — you maintain 1 metre setback and build in front of it. But an easement bisecting the block kills the project.

3. You have $125K-$135K available (or can finance it via construction loan). The build cost of $110K + GST is bankable — you can apply for a construction side loan against the property — but you still need cash for the soil test, permit, and insurance upfront.

4. The suburb supports $340-$390/week for a studio/one-bedroom. Not every area does. Inner-city suburbs where units rent for $350/week won't pay a premium for a backyard granny flat. But in Melbourne's southeast, northwest, and outer east — where independent small dwellings are scarce and demand from single workers is high — the rents consistently hit this band.

If all four conditions line up, a granny flat addition is one of the most reliable ways to push a Melbourne investment property from 3.5% yield to 6%+. The maths has worked on every build we've done — and we've overseen dozens.

It's not glamorous. It won't go viral on social media. But it produces an 18% return on the construction cost alone ($19,240 rent / $110,000 build) and lifts the whole property's value by $150K. That's the kind of boring, repeatable strategy that actually builds wealth.