As Melbourne’s property market continues to evolve, more homeowners and investors are turning to secondary dwellings, especially granny flats, to unlock new revenue streams. With platforms like Airbnb opening doors to short-term rental income, the potential for high returns has never been more tempting. But is listing your backyard unit as a short stay the right move?

This guide explores the pros and cons of using granny flats for Airbnb, the legal landscape in Victoria, and how short-term letting compares to traditional leases or multigenerational living solutions.

Why Airbnb Granny Flats Appeal To Investors

There’s no denying the income potential of Airbnb. In many parts of Melbourne and Victoria, a well-designed 1- or 2-bedroom granny flat can bring in $150 to $250 per night. Over a single weekend, that’s potentially more than you’d earn in an entire week with a long-term lease at $500 per week.

This is why many investors are considering Airbnb as a way to increase rental income from granny flats. The appeal is clear:

• Higher earning potential on a per-night basis
• Flexibility to use the space personally or for guests during off-peak times
• Faster payback period when occupancy rates are high
• An alternative to long-term leases in highly seasonal or tourism-heavy areas

However, as with all investments, there’s a flipside to this opportunity.

Council Regulations: Know Before You List

Before jumping into the short-stay game, it’s critical to check what’s allowed on your property. Not all councils in Victoria permit Airbnb-style rentals in residential zones, and some have very specific rules about who can operate them and under what conditions.

Depending on your suburb and zoning, you may:

• Require a planning permit or change of use approval
• Be limited to hosting only if you live in the main residence
• Need to comply with additional building or fire safety standards
• Be restricted in how many days per year you can rent the space

Working with a builder like Innovista Group from the start ensures your granny flat complies with local council rules. Their team can also assist with site feasibility and ensure your intended use, whether Airbnb, long-term lease, or multigenerational living solutions, is factored into the design and planning.

Design Considerations For Airbnb Granny Flats

Not all granny flats are suited for Airbnb out of the box. Guests on platforms like Airbnb are typically looking for a complete, self-contained stay that feels private, welcoming, and secure. To truly maximise rental income from granny flats, consider these essential features:

Private Access

Guests should have their own clear, secure entrance. If they have to walk through your side gate and past your laundry to reach the front door, the experience is immediately diminished.

Full Amenities

A fully functioning kitchen, spacious bathroom, dedicated bedroom, and climate control (like reverse cycle air conditioning) are non-negotiables for short-stay comfort. Laundry facilities are also a major plus.

Comfort And Layout

Open-plan living areas, lots of natural light, and thoughtful storage go a long way in making a compact space feel bigger and more premium. Outdoor seating or a small deck can also add to the appeal.

Innovista Group’s Lana Series flats include many of these features as standard, energy-efficient windows, functional kitchens, quality finishes, and thoughtful layouts that suit both long- and short-term use.

Airbnb vs Long-Term Rental: Which Is Better?

Let’s break it down in plain text.

Airbnb offers high income potential, especially in peak seasons, but it also comes with risks. Vacancy rates fluctuate, particularly in winter or in less tourist-heavy areas. You’ll also need to clean between guests, manage bookings, provide linen and toiletries, and handle reviews and guest queries.

Long-term rental, on the other hand, offers consistent income, less hassle, and fewer ongoing responsibilities. Once a tenant is in place, your only concern might be maintenance and annual inspections.

The difference often comes down to lifestyle and risk tolerance. Airbnb may offer higher short-term rewards but with more daily involvement. Long-term leases are slower but steadier, ideal for passive income seekers.

Who Should Consider Airbnb Granny Flats?

Airbnb might be a good strategy for you if:

• You live onsite and can manage check-ins, guest issues, and turnovers
• Your property is in a high-demand suburb, close to public transport or attractions
• You want flexible income or plan to use the space occasionally for family
• You’re comfortable with hands-on property management or using an agency

On the other hand, a long-term lease may be more suitable if you:

• Prefer stability and predictable income
• Don’t want to deal with guest logistics or cleaning
• Have a flat located in a residential zone that limits short-term rentals
• Are interested in using the space later for multigenerational living solutions

Dual Purpose: Futureproofing Your Investment

One of the smartest ways to approach granny flat investments is to think long-term. Your Airbnb listing today might become a stable lease in two years, or it might become a residence for aging parents or adult children five years from now.

That’s why flexibility in your design matters.

Innovista Group’s designs are built with this adaptability in mind. Their builds allow you to start with Airbnb, switch to a long-term lease, or transition to multigenerational living solutions as your needs evolve. This futureproofing maximises return and minimises regret.

How Long Does It Take To Build An Airbnb-Ready Granny Flat?

If you’re eager to tap into Airbnb income, timing matters. Here’s what a typical Innovista Group build timeline looks like:

• Initial Consultation: 1–2 weeks
• Design and Permits: 4–6 weeks
• Construction: 14–20 weeks
• Handover: 1 week

That means your granny flat could be operational in approximately 5 to 6 months from your initial consultation.

Final Thoughts: Is Airbnb The Right Path For You?

Listing your granny flat on Airbnb can be a smart strategy if you go in prepared. The promise of higher nightly rates and flexible use is real, but so are the challenges. Local compliance, maintenance needs, and seasonal occupancy should all factor into your decision.

For many homeowners, starting with short stays and transitioning to long-term rental offers the best of both worlds. For others, stable tenancy from day one provides the low-effort income they need.

No matter your path, the foundation of your strategy should be a high-quality, compliant, and adaptable build.If you’re ready to explore how rental income from granny flats can strengthen your property portfolio, or want to design a flexible space for multigenerational living solutions

Start your journey to smarter multi-generational living. Contact us today.