---
title: "Wake Up. If You Are Paying Money to Hold Your Investment Property, You Are Doing It Wrong."
description: "We manage 200+ properties in Melbourne. Almost none need topping up. A $10K kitchen reno adds $230/week rent. A $110K granny flat hits $900/week. Stop losing money."
author: Joey Don
date: 2023-06-08
category: Scam / Warning
url: https://premiumrea.com.au/blog/stop-subsidising-investment-property-positive-cashflow-guide
tags: ["positive cash flow", "renovation ROI", "granny flat", "rental yield", "investment property", "Melbourne property", "property management"]
---

# Wake Up. If You Are Paying Money to Hold Your Investment Property, You Are Doing It Wrong.

*By Joey Don, Co-Founder & CEO at PremiumRea — 2023-06-08*

> We manage close to two hundred properties in Melbourne. And I can count on one hand the number that require the owner to put money in every month. So when people tell me that subsidising an investment property is just the cost of doing business, I have a hard time keeping a straight face.

I am going to say something that will upset a lot of property educators and a fair number of financial planners: if your investment property costs you money every month, you bought the wrong property.

Not the wrong market. Not the wrong timing. The wrong property.

We manage close to two hundred rental properties across Melbourne — a city of five million people where the average rental yield hovers around 3 percent. That 3 percent figure is supposed to make positive cash flow impossible. And yet, outside of a handful of development-stage properties where the owners have deliberately chosen short-term vacancy, essentially every property in our portfolio is self-sustaining or better [1].

How? Because there are exactly three moves that transform a cash-draining investment into one that pays for itself. They are not secret. They are not complicated. But they do require you to stop treating your investment property like a passive asset and start treating it like a business.

## Move one: The $10,000 renovation that adds $230 per week

Let me show you two properties I manage. Same suburb. Same number of bedrooms and bathrooms. Nearly identical blocks.

Property A has a renovated kitchen and updated bathroom. Rents for $750 per week.

Property B has the original 1990s kitchen and bathroom. Rents for $520 per week.

The difference: $230 per week. That is $11,960 per year [2].

The cost to transform Property B into Property A? Approximately $10,000. Kitchen respray (not replacement — respray), new handles, new splashback. Bathroom: new vanity, new tapware, regrout, and a fresh coat of paint. Our in-house Reno team does this in seven to ten working days.

The return on that $10,000 investment: $11,960 in additional rent in year one alone. That is a 120 percent first-year return. And the renovation keeps paying every year after that.

This is not hypothetical. I have the properties. I have the rental agreements. I have the bank statements showing the rent hitting the trust account every week.

The reason most investors do not do this is mental laziness. They bought the property, put a tenant in at whatever the market would bear, and forgot about it. That is not investing. That is hoping.

## Move two: The granny flat that changes everything

Adding a secondary dwelling to an existing property is the single highest-ROI move available to residential investors in Victoria. Full stop.

Our standard granny flat build costs approximately $110,000 for a 30-square-metre one-bedroom dwelling. It includes full kitchen, bathroom, living area, and separate entrance. Council approval under the Residential Zones generally takes six to eight weeks for properties on blocks of 500 square metres or larger [3].

The rental uplift: a typical property renting at $500 per week as a standalone house will rent at $850-$900 per week once the granny flat is added (main house plus granny flat combined).

On a total investment of $110,000, the additional rent of $350-$400 per week equates to $18,200-$20,800 per year. That is an 18 percent gross return on the granny flat investment — every year, indefinitely [4].

Let me translate that to the actual cash flow position. Take a property purchased at $650,000 with an 80 percent LVR mortgage of $520,000. At 2.5 percent interest, the weekly repayment is roughly $475 on a principal-and-interest basis. Add rates, insurance, and management: total holding cost approximately $600 per week.

Without the granny flat, renting at $500 per week, the owner is losing $100 per week — $5,200 per year. That is the negative cash flow trap that people have been told is normal.

With the granny flat, renting at $900 per week, the owner has a $300 per week surplus — $15,600 per year of genuine positive cash flow. From negative $5,200 to positive $15,600. A swing of over $20,000 per year from a $110,000 investment.

Anyone who tells you positive cash flow is impossible in Melbourne has not done this maths. Or they have and they are selling you something.

## Move three: Internal conversion for maximum yield

This is the advanced play. Not for every property, but devastatingly effective when the layout allows it.

You take a standard four-bedroom house and convert the interior to create two independent living spaces. No external modifications. No planning permit required — just a building permit from a registered building surveyor. Cost: approximately $60,000-$80,000 [5].

The result: instead of renting a four-bedroom house for $650 per week, you rent two self-contained spaces for a combined $1,000-$1,200 per week.

I walked through one of these properties last month. Total cost basis $800,000 (purchase plus conversion). Renting at $1,200 per week. That is a gross yield of 7.8 percent in a city where 3 percent is the norm.

The management overhead is exactly double a standard rental — two leases, two tenant relationships, two sets of inspections. But the rental premium more than compensates. And critically, this is not a per-room rooming house. These are two separate households with separate entrances, separate kitchens, and no shared spaces. The management complexity is manageable [6].

This approach does not work on every property. You need a floor plan with a natural separation point, a block large enough for independent rear access, and a building that is structurally sound enough to handle the modification. Our team evaluates properties for conversion suitability as part of every acquisition assessment.

But when it works, it works spectacularly. And it kills the negative cash flow problem permanently.

## The excuses I hear (and why they are wrong)

"My property is in a good suburb so negative cash flow is fine — I am in it for the capital growth."

This is the most common excuse and it drives me slightly mad. Capital growth and cash flow are not mutually exclusive. Our Hampton Park case study: purchase price $590,000, bank valuation $670,000 (capital growth), rental income $850 per week (cash flow). Both. Simultaneously. On the same property [7].

The idea that you have to sacrifice cash flow for growth or growth for cash flow is a false trade-off perpetuated by people who do not know how to renovate a property.

"Council rates and land tax eat into the cash flow anyway."

Yes, they are costs. But they are the same costs whether your property is positively or negatively geared. A property earning $500 per week and a property earning $900 per week pay the same council rates. The rates do not scale with your rental income. So this argument actually supports renovating for higher yield — the fixed costs become a smaller percentage of a larger income.

"I cannot afford a renovation right now."

A $10,000 kitchen respray pays for itself in eleven months. If you cannot fund $10,000 against a property worth $600,000-$800,000, your cash management needs more urgent attention than your property strategy.

"But if the property is negatively geared, I get tax deductions."

You do. And for every dollar you claim as a deduction, you get back 30-45 cents depending on your marginal rate. Which means you are still losing 55-70 cents on every dollar of negative cash flow. Paying a dollar to save 45 cents is not a strategy. It is arithmetic failure [8].

## The bottom line

I manage properties in Melbourne — one of the most expensive capital cities in Australia, with one of the lowest average rental yields in the country. If positive cash flow is achievable here, it is achievable anywhere. In any city, any state, any market condition.

The tools are straightforward:

Light renovation ($10,000-$20,000): adds $150-$230 per week in rent. ROI: 80-120 percent in year one.

Granny flat ($110,000): adds $350-$400 per week. ROI: 18 percent annually. Payback: five to six years.

Internal conversion ($60,000-$80,000): adds $350-$550 per week. ROI: 25-35 percent annually. Payback: two to three years [9].

If you have watched this far and you are still subsidising your investment property every month, I genuinely think you are choosing to lose money. The information is here. The case studies are real. The renovation costs are documented. The rental figures are verifiable.

Stop treating your investment property like a liability you tolerate for tax benefits. Start treating it like an asset you actively manage for income. The difference between those two approaches is tens of thousands of dollars per year — and it compounds over decades.

If you need help making the switch, you know where to find us. We have done this 350-plus times. The playbook is proven [10].

## References

1. [PremiumRea property management portfolio. ~200 properties under management, near-zero negative cash flow after renovation/conversion.](#)
2. [PremiumRea rental comparison. Same suburb, same bedrooms: renovated kitchen/bathroom = $750/week vs original condition = $520/week. Difference = $230/week.](#)
3. [Victorian Planning Authority, 'Dependent Person's Unit (Granny Flat) Guidelines'. Minimum block size and approval pathway for secondary dwellings.](https://www.planning.vic.gov.au/)
4. [PremiumRea granny flat data. Build cost $110K, 30sqm, one-bed. Rental uplift $350-$400/week. Gross ROI 18%.](#)
5. [PremiumRea internal conversion data. Cost $60K-$80K. Building permit only (no planning permit for internal modifications).](#)
6. [PremiumRea case study: $800K total investment, dual-occupancy internal conversion, $1,200/week combined rent, 7.8% gross yield.](#)
7. [PremiumRea case study: Hampton Park, 15 Wren St. Purchase $590K, CBA valuation $670K, rent $850/week. Capital growth AND cash flow simultaneously.](#)
8. [Australian Taxation Office, 'Rental deductions you can claim — negative gearing', 2020-21. Deductions reduce taxable income at marginal rate.](https://www.ato.gov.au/)
9. [PremiumRea renovation ROI summary. Light reno: 80-120% year-one ROI. Granny flat: 18% annual. Conversion: 25-35% annual.](#)
10. [CoreLogic, 'Melbourne Rental Yield Report', Q4 2020. Average gross rental yield 3.1% across metropolitan area.](https://www.corelogic.com.au/)

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Source: https://premiumrea.com.au/blog/stop-subsidising-investment-property-positive-cashflow-guide
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent