Granny Flat vs Duplex: What Works Best for Investment Purposes?

Australia's property market is getting tougher for everyday investors. With house prices soaring, many people are looking for smarter ways to make their money work harder in real estate.Two options keep coming up in conversations: building a granny flat in your backyard or developing a duplex on your land. Both can bring in solid rental income, but they work quite differently.

Granny flats are the simpler option. You build a small, self-contained home on your existing property and rent it out. Many investors are seeing rental returns above 7% because tenants love the privacy and affordability compared to apartments. Plus, you can often get one built and rented out within six months.

Duplexes are more complex but potentially more rewarding. You're essentially creating two homes on one block of land. While the rental returns might be slightly lower at around 6-7%, you're also creating value by having two separate properties instead of one. This can mean instant equity when the development is complete.

The big question is: which one suits your situation, budget, and goals better? The answer depends on factors like your available land, local council rules, budget, and how hands-on you want to be with the development process.

Both strategies can work well, but understanding what each involves upfront will save you from costly mistakes down the track.

What Exactly is a Granny Flat?

A granny flat, also known as a secondary dwelling or accessory dwelling unit (ADU), is a self-contained living space that is usually built on the same lot as an existing home. These aren't just for grannies anymore – they serve multiple purposes from rental properties to home offices, guest accommodation, or housing for adult children.

More than 650,000 properties across Brisbane, Melbourne, and Sydney stand ready for granny flat transformation, highlighting the enormous potential in this market segment.

What are Duplexes?

A duplex house, also known as a dual occupancy home, is a residential building that contains two separate dwellings within a single structure. Each of the residences will have their own front door, kitchen, amenities, basically any features you might expect from a freestanding home.

The key distinction? Unlike granny flats, where in some states the local council's regulations refuses renting out your granny flat to anyone other than a member of your immediate family, if you build a duplex you can live in one half and rent out the other.

What are the Investment Costs like?

Granny Flat Investment Costs

In 2025, you can expect to pay anywhere from $80,000 to $200,000 for a granny flat in Australia. Here's the breakdown:

• Basic granny flat (30-40 m²): $80,000 – $120,000
• Mid-range granny flat (40-60 m²): $120,000 – $150,000
• High-end granny flat (60-80 m²): $150,000 – $200,000+

The average cost of building a Granny Flat in NSW is a mere $145k–$200k, a Granny Flat can potentially pay itself off in just a couple of years.

ALSO READ: How Much Does It Cost to Build a Granny Flat in 2025?

Duplex Construction Costs

The cost of building a duplex typically ranges from $700,000 to $1.5 million, depending on factors like location, size, design complexity, and the quality of materials used.

In 2025, the cost to build a duplex in Australia typically ranges from $2,000 to $3,800 per square metre.

Regional variations are significant:

• Sydney: $2,400-$3,800 per square metre
• Melbourne: $3,000-$3,600 per square metre
• Regional areas: Often 20-30% less than capital cities

The financial commitment difference is stark – you could potentially build 3-4 granny flats for the cost of one duplex.

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What about the Return on Investment?

Granny Flat Returns

The average ROI on building a Granny Flat on your property is 20%, which, combined with a relatively low upfront cost, makes a Granny Flat an incredibly attractive prospect for homeowners. This significantly outperforms an average 6.8% return on all real estate investments as reported by the Australian Securities Exchange (ASX).

A granny flat could earn you up to $28k per year, with rental yields that can fetch as much as $500 per week in well-located areas with good access and privacy.

Duplex Investment Returns

Duplexes are considered to be a safe investment because you are creating two residential incomes (unless you choose to live in one property), usually each in between 6-7% in return, as well as an instant equity after subdividing.

The advantage? You're essentially creating two properties from one block of land. Owning a duplex in its entirety and renting both properties paves the way to earn two income streams and achieve positive cash flow and high-interest return as an investment over time.

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What are the Regulations I Should be Aware Of?

Granny Flat Regulations

The regulatory environment has become increasingly favourable. Compliant granny flats on residential lots of any size in Western Australia will no longer require approval under the latest State planning reform initiative to help boost housing supply Victoria for granny flats under 60 square metres built on properties over 300 square metres, effective from December 2023.

However, state variations exist. Between September 2022 and January 2024, state governments for Queensland, South Australia, Western Australia and Victoria changed laws to let homeowners rent granny flats to anyone, not just family.

Duplex Regulations

Each local council has its own set of rules when it comes to building granny flats. Here are some general guidelines: The granny flat must typically be located 10 meters from the main residence. Most councils limit the size of granny flats to around 70 square meters of gross floor area.

Duplex regulations are typically more complex, requiring development applications and often longer approval timeframes. From land acquisition to auction, a two-home dual occupancy development requires, on average, 24 months to be completed.

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How to Finance Your Investment Strategy

Granny Flat Financing

According to Drew Healey, CommBank's manager of retail lending, homeowners can finance granny-flat construction using home equity, and while immediate property value increases may not equal the building costs, they can offer long-term investment benefits.

With a Granny Flat Investment, you might be able to tap into the equity in your current home to fund the build, especially if you can't pay for it upfront. That's a far smaller financial burden than taking out a whole new mortgage.

Duplex Financing

Construction loans: Specifically for funding the building process, these loans offer flexibility and allow you to draw funds as needed. They typically have higher interest rates and require a thorough project evaluation.

Duplex financing typically requires larger deposits and more comprehensive financial assessments due to the higher investment amounts involved.

Market Trends and Future Outlook

Growing Demand

From humble beginnings of 4,729 approvals in 2016, these versatile spaces have captured Australian hearts, reaching an impressive 21,342 approvals by 2021. Australia faces a critical undersupply of 106,300 dwellings over the next five years, creating strong underlying demand for both investment types.

Location Considerations

Sydney leads the charge with 242,000 suitable properties (17.6% of metro housing stock), Melbourne follows with 230,000 prime sites (13.2%), Brisbane shines with 185,000 potential locations (23.3%), demonstrating significant opportunities across major Australian cities.

Tax Implications and Depreciation Benefits

Both investment types offer attractive tax benefits.

According to BMT Quantity Surveyors, the average 5-year depreciation deduction for a granny flat sits around $23,713. Tax depreciation rules means, as an investor, you can claim depreciation on fittings in the properties for duplexes as well.

However, there's an important consideration: The second property you decide to rent or sell, won't be governed by "owner-occupied" rules for primary residences with duplexes, which affects capital gains tax obligations.

The Resale Check

Property Value Impact

The last detailed report from CoreLogic (2019) showed that properties with granny flats sold for around 30% more than similar homes without them. With housing shortages and rising demand for affordable rentals, it's safe to say that figure is still relevant — and probably even higher.

However, there's a caveat. When you sell your property, the pool of potential buyers is limited to people who want a house with a granny flat. And this isn't most people. Most people want a backyard for the kids to run around in.

Long-term Considerations

The instant equity return from the construction of a granny flat will be much less than if you built a duplex or subdivided the land. You can sell an investment property later to fund retirement or new investments — something you can't do with just a granny flat.

Making Your Investment Decision

Choose Granny Flats If You:

• Have limited capital (under $200,000) for property investment
• Want quick returns and high rental yields
• Prefer lower-risk investments with faster payback periods
• Already own property with suitable backyard space
• Seek an entry point into property investment

Choose Duplexes If You:

• Have substantial capital ($700,000+) available
• Focus on long-term capital growth and wealth building
• Want the flexibility to sell properties separately
• Seek to maximise land value through subdivision
• Can handle longer development timeframes and more complex approvals

Granny Flats or Duplexes, Get in touch with us for a free consultation

At Superior Granny Flats, we specialise in helping Australian investors navigate these decisions and create high-performing secondary dwellings. Our team understands the local regulations, market dynamics, and design considerations that maximise your investment returns.

Contact us today for a comprehensive consultation on your property investment strategy. Let us help you determine whether a granny flat, duplex, or alternative approach best suits your financial goals and unlock the full potential of your property investment journey.