We Split This $820K House Into Three Rentable Units. It Now Earns $1,200 a Week.

I'm standing inside a property that most investors would dismiss at first glance. It doesn't have marble benchtops. The garden isn't magazine-worthy. From the street, it looks like a standard 1970s brick house in Melbourne's east.

But this property is pulling $1,200 a week in rent. It settled six months ago at $820,000. The bank's latest desktop valuation came in at $900,000+ — that's a 10% gain in half a year, roughly $70,000 in pure equity. And the weekly rental income is covering the mortgage with room to spare.

How? We designed a conversion that splits the house into three separately rentable units, each with its own living space, bathroom, and entrance. No demolition. No rebuild. Just intelligent reconfiguration of existing space, done with proper permits and compliance certificates.

I'm going to walk you through every unit, explain the design decisions, break down the numbers, and — crucially — flag the one mistake that would have cost the owner $80,000 if they'd gone ahead without professional guidance.

The site: why this block was perfect

The property sits on a corner block of nearly 700 square metres. Corner blocks are gold for conversion projects because they offer multiple street frontages, which means separate entrances for each unit without tenants walking through each other's space 1.

The existing house was a standard three-bedroom, one-bathroom brick veneer — probably 130 square metres of internal floor space. Nothing special architecturally. But the floor plan had natural break points where internal walls could create genuine separation between living zones.

More importantly, the block has long-term development potential. A 700 square metre corner site in a General Residential Zone could support a four-unit subdivision in the future. But the owner isn't in a rush to develop. The conversion generates enough cash flow to hold the asset indefinitely, and the development option can be exercised in 5-10 years when the market conditions (and the owner's appetite for a larger project) align 2.

This "hold and harvest" approach is central to our philosophy. We don't rush clients into developments. We configure the asset for maximum immediate cash flow, then preserve the development upside for later.

Unit one: the main house (3-bed, 1-bath) — $450/week

The front portion of the house retained its original three-bedroom, one-bathroom configuration. We refreshed the kitchen (new benchtops, splashback, handles — about $3,000), repainted throughout ($2,500), and replaced the flooring with hybrid planks ($4,000 for the whole unit) 3.

Total spend on Unit 1: approximately $9,500.

This unit appeals to families or sharehouse groups who want a proper house with a front yard and off-street parking. Current tenant: a young family of four paying $450 per week, which is competitive for the area and a solid return on its own.

The key design decision was where to create the physical separation between Unit 1 and Units 2-3. We identified a hallway junction that, with the addition of a single partition wall and a fire-rated door, created a genuine boundary. Each side has its own entrance from the exterior. No shared corridors, no shared facilities.

Unit two: the converted rear (2-bed equivalent) — $400/week

The rear section of the house was reconfigured into a two-bedroom unit with its own kitchenette, bathroom, and rear entrance. This required more work:

• New kitchenette installation (compact kitchen with oven, cooktop, sink, rangehood): $6,000
• Bathroom upgrade (new vanity, toilet, shower screen): $3,500
• Partition walls and doorway modifications: $4,000
• Flooring, painting, lighting: $3,500

Total spend on Unit 2: approximately $17,000.

This unit has its own entrance from the side street — the benefit of the corner block. Tenants walk in through a dedicated gate and door. They never interact with Unit 1 tenants. It feels like a separate dwelling, even though it shares a roof structure.

Current rent: $400 per week. Tenant: a professional couple who both work locally. They specifically wanted a quiet, self-contained space that wasn't an apartment.

Unit three: the detached studio — $350/week

The third unit is a studio conversion at the rear of the property — an existing structure (originally a large shed/workshop) that was converted into a habitable space with a bathroom and kitchenette.

This was the most compliance-intensive part of the project. A non-habitable structure (shed, garage) cannot simply be "converted" by throwing in a bed and calling it a unit. It needs to meet Building Code of Australia requirements for habitable spaces: minimum ceiling height, natural light, ventilation, thermal insulation, fire separation, and egress 4.

We engaged a registered builder and building surveyor from the start. The conversion included:

• Structural assessment and engineering: $2,000
• Insulation upgrade (walls and ceiling to meet NCC standards): $3,000
• Window installation for light and ventilation: $2,500
• Kitchenette and bathroom fit-out: $8,000
• Fire separation compliance (rated wall between studio and main dwelling): $3,000
• Occupancy Certificate (OC) application and inspection: $2,000

Total spend on Unit 3: approximately $20,500.

Current rent: $350 per week. Tenant: a single professional working shift work at a nearby hospital.

"I need to be extremely clear about this," says Joey Don. "You cannot rent out a converted shed without an Occupancy Certificate. If council catches you — and they will, eventually — the fine starts at $10,000 and can go much higher. Three years of rental income wiped out in a single penalty notice. Do it properly or don't do it at all."

The numbers: total investment vs total return

Let me lay it all out.

Purchase price: $820,000 Stamp duty and legal costs: ~$48,000 Conversion costs (all three units): ~$47,000 Total invested: ~$915,000

Weekly rent (combined): $450 + $400 + $350 = $1,200 Annual rent: $62,400 Gross yield on total investment: 6.8%

Mortgage (80% LVR on purchase price at 6.3%): ~$3,400/month Annual mortgage cost: ~$40,800 Annual rates, insurance, maintenance: ~$8,000 Total annual holding cost: ~$48,800

Net annual cash flow: $62,400 - $48,800 = $13,600 positive

That's $1,133 per month of genuine passive income, after all costs. Plus the property has already appreciated roughly $70,000 in six months 5.

Compare this to a standard single-tenant rental at $550/week on the same house (which is what it would fetch unrenovated as a single dwelling). That's $28,600 per year — barely covering the mortgage, let alone generating positive cash flow.

The conversion more than doubled the rental income for a $47,000 outlay. Payback period on the renovation cost: 8 months.

The $80K mistake we prevented

Here's the part I promised at the start. The owner originally wanted to do a full granny flat build in the backyard — a standard 30 square metre one-bedroom at $110,000 + GST 6.

On paper, it made sense. A granny flat would add $370-$390/week in rent. Good return on investment.

But when we assessed the site, we identified a problem. The existing rear structure (the shed) was already within the setback zone for a new granny flat. Council would require the shed to be demolished before a new structure could be approved. That's $15,000 in demolition costs plus the $110,000 build — total outlay of $125,000+ for a $380/week rental stream.

Instead, we converted the existing shed into a habitable unit for $20,500 and achieved $350/week. Similar rental income, one-sixth of the cost, and significantly faster execution (8 weeks versus 5-6 months for a granny flat build) 6.

The owner would have spent $125,000 to earn $380/week. Instead they spent $20,500 to earn $350/week. That's the $80,000 we saved them — and the difference between a good investment and a great one.

The lesson: before you commit to any renovation or construction project, have someone who's done it 50 times before evaluate all the options. The obvious path is not always the optimal path.

"We've built over 47 granny flats and converted dozens of properties," says Joey Don. "Every site is different. The value of experience isn't knowing the textbook answer — it's knowing when the textbook answer is wrong for a specific block."