Is Building a Secondary Dwelling a Good Investment for Rental Income?

In a time when property prices are high, rental demand is surging, and homeowners are looking for smart ways to boost income without selling up, one solution is steadily gaining traction—building a secondary dwelling.

Often referred to as a granny flat, this type of property can be a savvy investment that adds both value and cash flow.

But is it really worth it? In this article, we’ll walk you through everything you need to know to answer that question for yourself. We’ll look specifically at the rental potential of secondary dwellings in Victoria and Queensland, outline costs and legal considerations, and explore whether it stacks up as a sound investment.

What Is a Secondary Dwelling?

A secondary dwelling (commonly called a granny flat) is a self-contained unit built on the same lot as a primary residence. It typically includes a bedroom, bathroom, kitchen, and living area. Granny flats can be attached, detached, or even built above a garage, and they vary widely in size and design.

They're often used to house ageing parents, adult children, or guests—but increasingly, they're being viewed as rental assets that generate ongoing income.

Why the Sudden Popularity of Rental Granny Flats?

Several key trends are driving interest:

• Housing affordability pressures are pushing more renters into smaller, more affordable accommodation options.
  
• Multi-generational living is on the rise.
  
• Land shortages in urban areas are encouraging homeowners to maximise existing space.
  
• Policy changes in VIC and QLD have made it easier than ever to build and rent out granny flats legally.
  

The idea of turning unused backyard space into a steady income stream is attractive—but let’s look more closely at whether it holds up as an investment.

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Rental Demand in VIC and QLD

Let’s start with the numbers.

Victoria

Rental demand across Victoria remains consistently high, especially in outer suburban growth corridors like Casey, Wyndham, and Melton. Vacancy rates are historically low (under 1% in many suburbs as of early 2025), and the median rent for a one-bedroom flat in Melbourne sits around $380–$450 per week, depending on the suburb.

In regional areas like Geelong and Ballarat, demand for affordable rentals is also rising rapidly, making granny flats increasingly attractive.

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Queensland

The situation is similar in Queensland. In Brisbane, Gold Coast, and Sunshine Coast, rental demand has soared in the past two years. As of mid-2025:

• Brisbane’s vacancy rate remains below 1.2%.
  
• Rents have increased by 30% since 2020.
  
• The median rent for a one-bedroom flat in many suburbs sits between $400–$500 per week.
  

And here's the kicker: In 2023, Queensland updated its planning laws to allow property owners to rent out granny flats to non-relatives, opening the door for thousands of homeowners to enter the rental market.

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So… Is It Worth It?

The short answer? Yes—if it’s done properly.

Let’s break it down:

1. Rental Income Potential

Depending on location, size, and finish, a granny flat in VIC or QLD could rent for $350 to $500 per week, or more in high-demand areas. That’s up to $26,000 per year in passive income—from your backyard.

Over 10 years, that’s $260,000 in gross rental income, assuming rental rates remain steady (and they likely won’t—they’ll go up).

2. Build Cost

A high-quality one or two-bedroom granny flat typically costs between $120,000–$160,000, turnkey and ready to rent. Modular builds and custom designs are available, depending on your site and requirements.

At these figures, the rental yield is quite strong. For example:

• Cost: $140,000
  
• Weekly rent: $450
  
• Annual rent: $23,400
  
• Gross yield: 16.7%
  

Compare that with buying a second standalone investment property, and the numbers are compelling.

3. Added Property Value

In addition to rental income, granny flats can also boost your property's resale value—especially if professionally designed and well-placed.

Depending on market conditions, a quality secondary dwelling can increase your property’s value by up to 30%, according to local real estate agents. That’s significant capital growth potential.

Also Read: Top 5 Reasons to Add a Second Small Dwelling to Your Property

But What About Council Approval and Red Tape?

Good question. Here's what you need to know.

Victoria

In VIC, granny flats are referred to as "dependent person’s units (DPUs)", but in 2023, there were major regulatory reforms allowing more flexibility for rental use.

• You’ll need a building permit, and in most council areas, a planning permit too.
  
• Size limits vary but are generally up to 60m² in residential zones.
  
• Your lot size and backyard space will impact eligibility.
  
• Rental to non-family members is increasingly permitted in urban areas.
  

Make sure you work with experts who understand local council rules, which can differ between suburbs.

You Might Also Like:  Understanding Victoria’s Granny Flat Rules

Queensland

QLD has made it easier. As of 2023:

• Granny flats can be rented to unrelated parties—a major shift in the state’s housing strategy.
  
• No development approval is required in many areas if the dwelling meets size, setback, and design requirements.
  
• Maximum size is typically up to 80m² (excluding patios and carports).
  

It’s important to still check your local council guidelines (e.g. Brisbane City Council, Gold Coast City Council), but overall, QLD is now one of the most granny-flat-friendly states in Australia.

Things to Consider Before You Build

Let’s be honest—not every backyard is suitable, and not every property owner is ready to become a landlord.

Here are some points to consider:

• Space: Do you have enough land to meet the council setback and size requirements?
  
• Tenancy: Are you comfortable renting to someone on your property?
  
• Access: Is there a clear path or private entrance to the secondary dwelling?
  
• Privacy: How will the design ensure privacy for both the main home and the flat?
  
• Ongoing maintenance: Are you ready to manage the upkeep, or will you hire a property manager?
  
• Financing: Will you pay cash, or need to refinance? Many banks are now offering loans specifically for granny flat builds.
  

Who Is the Ideal Tenant?

The rental market for secondary dwellings is quite diverse:

• Young professionals and couples looking for affordable housing in desirable areas
  
• University students who want privacy but proximity to campuses
  
• Downsizers or retirees seeking low-maintenance living
  
• Single parents or small families needing a compact, self-contained space
  

With vacancy rates low and demand rising, granny flats attract long-term, reliable tenants—especially in suburban growth corridors and lifestyle regions.

Can You Claim Tax Benefits?

Yes. If the granny flat is used to generate rental income, you may be eligible to:

• Depreciate the cost of the building and its fittings
  
• Claim interest on your construction loan
  
  
• Deduct maintenance and property management fees
  
  

Always consult a qualified accountant or tax adviser to maximise your returns and remain ATO-compliant.

So, Is It a Good Investment?

When done right, a secondary dwelling offers:

• Strong rental returns
  
  
• Property value uplift
  
  
• Flexible use (rent it now, accommodate family later)
  
  
• Tax advantages
  
  
• Affordable entry point compared to buying a second property
  

Given the low vacancy rates, high rental demand, and improved planning frameworks in VIC and QLD, there’s never been a better time to invest in a granny flat for rental income.

ALSO READ: Maximising Property Investment with Granny Flats

Why Work with Superior Granny Flats?

At Superior Granny Flats, we specialise in building high-quality, custom-designed secondary dwellings across Victoria and Queensland. We’ve helped hundreds of homeowners transform their unused backyard space into income-generating assets—and we can help you do the same.

Here’s what sets us apart:

• Over 30 years’ experience in designing and building granny flats
  
• Expertise in navigating council approvals and site planning
  
• Customisable, turnkey solutions to suit every budget and property size
  
• Support at every step—from design to handover
  

Whether you’re a first-time investor or a seasoned property owner, we’ll help you unlock the rental potential of your property.

Let’s chat about what’s possible for your property. Contact our team today to book your free site inspection and get expert advice tailored to your needs.

Addressing Common Concerns

Many homeowners have questions and concerns about building a granny flat. Here are some of them answered for you.

Will a granny flat devalue my property?
No—in fact, the opposite is true. A well-designed, well-built granny flat can add significant value to your property, often between 20% and 30%.

Will it be hard to find tenants?
Not likely. Demand for affordable, self-contained accommodation is high, especially in well-located suburbs. Vacancy rates for granny flats are typically low.

What if I want to use it for family?
That’s perfectly fine. You can use your granny flat for family, friends, or tenants—whatever suits your needs.

Is it a big hassle to build one?
With the right builder and proper planning, the process is straightforward. Most granny flats can be completed in 10–14 weeks, and many companies offer turnkey solutions