---
title: "We Bought a Property With a Granny Flat Already Built. Here's Why It Cleared 6% Yield From Day One."
description: "Real case study: buying a Melbourne property with an existing granny flat. $753K purchase, $920/week combined rent, 6.3% gross yield — no construction wait."
author: Joey Don
date: 2026-01-26
category: Renovation & Development
url: https://premiumrea.com.au/blog/pre-built-granny-flat-case-study-melbourne
tags: ["granny flat", "case study", "dual income", "rental yield", "Melbourne", "cash flow", "property investment"]
---

# We Bought a Property With a Granny Flat Already Built. Here's Why It Cleared 6% Yield From Day One.

*By Joey Don, Co-Founder & CEO at PremiumRea — 2026-01-26*

> Most investors spend five months and $110K building a granny flat. We found one already done. The numbers were better than anything we could have built ourselves.

I get asked this question at least twice a week: should I buy a place and build the granny flat myself, or find one that's already got one?

The honest answer is it depends. But last quarter, we settled on a property in Melbourne's southeast that had a granny flat already standing — proper OC, proper Building Permit, the works — and the numbers were frankly better than if we'd built from scratch.

Let me walk you through exactly what happened.

## The deal: what we actually bought

The property was in the far southeast corridor. Mr Huang (not his real name, privacy matters) came to us with about $250K in savings, solid PAYG income north of $140K, and a clear brief: positive cash flow from week one, no messing about with construction timelines.

We found him a 600-plus square metre block with a three-bedroom weatherboard main house and a self-contained one-bedroom granny flat in the rear. The granny flat was about 45 square metres — kitchen, bathroom, bedroom, small living area. Built roughly four years earlier, had the OC on file.

Purchase price: $753,000. The vendor's agent had it listed at $780K-$810K. We came in with an unconditional offer, 60-day settlement, and closed at $753K. That's $27K-$57K below the range [1].

"The granny flat had been rented at $320 a week to a single retiree who'd been there two years with zero missed payments," says Joey Don, Co-Founder & CEO at PremiumRea. "The main house was tenanted at $600 per week. Combined: $920 a week, day one. No construction. No waiting."

Gross yield on $753K at $920 per week: 6.35%. In a market where the Melbourne median sits around 3.2% for a standalone house [2], that number makes accountants do a double-take.

## Why buying an existing granny flat can beat building one

Building a granny flat in Melbourne right now costs between $110,000 and $160,000 plus GST, depending on the size. A standard 30-square-metre one-bedder runs about $110K + GST. A 60-square-metre two-bedder pushes $160K + GST [3]. On top of that, you've got soil testing ($4,400), Building Permit ($3,000), builder's insurance ($5,500), and the ever-present risk of hitting rock during excavation — that's an extra $2,000-$5,000 if you're unlucky.

Timeline? Paperwork takes one to two-and-a-half months. Construction takes roughly three months after that. So you're looking at 4.5 to 5.5 months from settlement to the granny flat generating a single dollar of rent.

Mr Huang's property skipped all of that. The existing granny flat had a residual value of roughly $60,000-$70,000 built into the purchase price — significantly less than the $121,000-plus it would cost to build new (once you add GST and all the hidden fees). And because both dwellings were already tenanted, his cash flow was positive from the settlement date.

The maths is simple. If you build:
- Purchase price: ~$680K (without granny flat)
- Construction: ~$121K (30sqm, all-in)
- Total outlay: ~$801K
- Lost rent during 5 months of construction: ~$7,200
- Combined rent once done: ~$920/wk
- Effective yield on $808K: 5.92%

If you buy pre-built:
- Purchase price: $753K (with granny flat included)
- Construction: $0
- Total outlay: $753K
- Lost rent: $0
- Combined rent: $920/wk
- Yield on $753K: 6.35%

The pre-built option wins on every metric. Lower total cost, higher yield, zero construction risk, zero vacancy during build.

## The catch (because there's always a catch)

Pre-built granny flat properties are rare. That's the honest truth. We screen maybe 40 properties a week across the southeast, and maybe two or three come with an existing secondary dwelling. Of those, maybe one has proper documentation.

And documentation is the sticking point. A lot of granny flats in Melbourne were built without a Building Permit, without an OC, sometimes without any paperwork at all. The previous owner's cousin was a chippy, he threw it up over a long weekend — that sort of thing.

Those ones scare me.

If there's no OC, you can't legally rent the granny flat. If you rent it anyway and something goes wrong — fire, injury, anything — your insurance won't cover it. Your landlord insurance from Terri Scheer specifically asks about multiple tenancies, and if you haven't disclosed, they'll void your policy [4].

So what we do is check three things before we even inspect:

1. Is there a Building Permit on record with the council?
2. Is there an Occupancy Certificate?
3. If neither exists, was it built more than seven years ago (because Victoria doesn't require disclosure of building works older than seven years in the Section 32)?

For scenario three, we get the buyer Title Insurance — one-off cost around $700-$1,000, covers you for life. If council ever comes knocking about the unpermitted structure, the insurer deals with it [5]. We had a client buy a property where the s32 showed a 10-square-metre sunroom extension with no permit. Built over a decade ago. We got Title Insurance for $800, and it hasn't been an issue since.

## How we screen for granny flat properties (the four filters)

Not every property with a "second dwelling" in the listing is actually a good buy. Here's our screening process.

**Filter 1 — Land size and access.** The block needs to be 550 square metres minimum for a granny flat setup to work properly. Side driveway must be wider than three metres — that's for separate vehicle access and future development potential. If you can't get a crane truck down the side, you can't build. And if you can't build, you can't develop later [3].

**Filter 2 — Compliance status.** We pull the council records, check for BP and OC. If neither exists, we assess risk (age of structure, quality of construction, visibility from street). Title Insurance is the backup.

Filter 3 — Rent verification. We get our leasing team to run comparable analysis on both the main house and granny flat independently. The vendor's claimed rent of $920/week needed to stack up against actual market data. In this case, the main house comps were $580-$620/week for a three-bedder in the area, and the granny flat comps were $310-$340/week for a self-contained studio. The $920 was legit — actually slightly conservative.

**Filter 4 — Easement and overlay check.** A granny flat on a block with a sewer easement running through the middle is worthless. We check that any easements are at the rear boundary (where they should be) and that there's no Heritage Overlay, Bushfire Management Overlay, or Special Building Overlay affecting the rear yard [6].

## What happened after settlement

Mr Huang settled on a Thursday. The existing tenants stayed. Both leases transferred across at settlement — we made sure the vendor's PM had all paperwork in order, and our leasing team (Jacqueline handles about 50 properties, so response times are fast) took over management the same day.

First month's rent hit his account seven days after settlement. No vacancy. No construction noise. No council inspections.

He did spend about $8,000 on the main house — new Deadlocks on external doors (required under Victoria's Minimum Rental Standards), a gas safety check, electrical safety check, and some cosmetic paint in the hallway. Standard compliance stuff that any investment property needs [7].

The granny flat needed nothing. Previous owner had maintained it properly.

Total all-in cost: $753,000 purchase + $8,000 compliance = $761,000.
Combined weekly rent: $920.
Gross yield: 6.28%.
Net yield after PM fees (6.90% + GST for dual occupancy), insurance ($2,100/yr), council rates ($2,000/yr), and water ($650/yr): approximately 5.1%.

"At current interest rates on an 80% LVR IO loan — roughly 6.5% — the weekly holding cost is about $740," says Joey Don. "Rent is $920. That's $180 per week positive. $9,360 a year in your pocket, before depreciation deductions."

Compare that to the Melbourne average investment property, which is bleeding $200-$400 per week in negative cash flow right now. This deal is from a different universe.

## Should you build or buy pre-built?

Look, I'm not saying never build a granny flat. We've overseen dozens of builds and the numbers work brilliantly when done right. A 30-square-metre granny flat at $110K + GST generating $370-$390 per week (including bills) delivers roughly 18% gross return on the construction cost alone [3]. That's hard to beat as an add-on strategy.

But if you find a property that already has a compliant granny flat, and the combined purchase price reflects reasonable value, you skip five months of dead time and eliminate construction risk entirely.

The RBA cut the cash rate in February 2025 by 25 basis points to 4.10%, and markets are pricing in further cuts through Q3-Q4 [8]. Every month you're not collecting rent is money you're leaving on the table — and in a falling-rate environment, property values are moving up. The gap between what you could have bought and what it costs by the time your granny flat is finished could be $20K-$30K.

My advice: tell your buyer's agent you're open to both. Cast the net wide. If a pre-built granny flat deal surfaces and the numbers work, grab it. If not, buy the best block you can find and build one yourself. Either way, the dual-income model is how you get to 6% yield in a market where most investors are stuck at 3%.

## What type of property gets you to 6% yield in Melbourne right now?

I'll give you the framework because I've been asked this enough times that I should just put it in writing.

To hit 6% gross yield in Melbourne in 2025, you need dual income streams on a single title. Full stop. A single dwelling on a $700K property renting at $500-$550/week gives you 3.7%-4.1%. You're underwater at current rates.

Dual income options:

1. Pre-built granny flat (like Mr Huang's deal) — $700K-$800K purchase, $900-$950/week combined rent.
2. New-build granny flat — $700K purchase + $121K build, $850-$920/week combined rent after 5 months.
3. Internal conversion (rooming house style) — $750K-$850K purchase + $65K-$100K conversion, $1,000-$1,200/week combined rent. Not bankable as residential, treated as commercial for valuation [9].

All three get you to or past 6%. The choice depends on your cash reserves, risk appetite, and whether you want bank-friendly (granny flat) or maximum-yield (rooming house).

Every property we buy at PremiumRea follows the same iron rule: land value must exceed 80% of the purchase price. That $753K property? Land value based on recent vacant block sales in the area was approximately $620K. The building and granny flat combined were worth maybe $133K as depreciating structures. Land-to-price ratio: 82%. That's the sweet spot.

The building depreciates. The land doesn't. In ten years, the land under Mr Huang's property will be worth more than his entire purchase price today. The granny flat is just the engine that pays the mortgage while you wait.

## References

1. [PremiumRea internal transaction data: Mr Huang case study, southeast Melbourne dual-occupancy purchase Q4 2024.](#)
2. [CoreLogic, 'Quarterly Rental Review — Melbourne Gross Rental Yields', March 2025. Melbourne houses median gross yield: 3.2%.](https://www.corelogic.com.au/news-research/reports/quarterly-rental-review)
3. [PremiumRea granny flat construction pricing schedule. 30sqm: $110K + GST; 60sqm: $160K + GST. Soil test ~$4,400, BP ~$3,000, builder insurance ~$5,500.](#)
4. [Terri Scheer, 'Landlord Insurance — Multi-Tenancy Disclosure Requirements', 2024.](https://www.terrischeer.com.au/landlord-insurance)
5. [Stewart Title, 'Title Insurance for Residential Property Owners — Victoria', 2024. One-off premium $700-$1,000, lifetime coverage.](https://www.stewartau.com/)
6. [Victorian Government, 'Planning Property Report — Check Overlays', Planning Maps Online.](https://mapshare.vic.gov.au/vicplan/)
7. [Consumer Affairs Victoria, 'Minimum Rental Standards for Rental Properties', updated January 2025.](https://www.consumer.vic.gov.au/housing/renting/standards-and-repairs/minimum-standards)
8. [Reserve Bank of Australia, 'Cash Rate Decision — February 2025', Media Release, 18 Feb 2025. Cash rate reduced to 4.10%.](https://www.rba.gov.au/media-releases/2025/mr-25-01.html)
9. [PremiumRea portfolio data. Rooming house conversions classified as commercial for bank valuation purposes.](#)

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Source: https://premiumrea.com.au/blog/pre-built-granny-flat-case-study-melbourne
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent