In a property market where capital growth is slowing and cash flow is king, Melbourne homeowners and investors are getting more strategic with their land. One of the most talked-about opportunities? The granny flat, a compact, self-contained dwelling that’s fast becoming a serious wealth-building tool. But are granny flats worth it in 2025? Let’s break down the ROI and see how this investment stacks up.
Can you really earn more than 10% rental return from a granny flat? Or is that just another real estate myth?
The answer is yes, and many savvy investors across Victoria are already doing just that. With smart planning and support from a full-service builder like Innovista Group, the return potential is not only real but sustainable.
This article unpacks the ROI, numbers, and strategies behind granny flats for investment Melbourne property owners are increasingly turning to for cash flow, equity gains, and long-term flexibility.
Why Granny Flats Are In Demand
Victoria’s housing crunch has created strong demand for smaller, more affordable rentals in established suburbs. From young couples priced out of the market to downsizers, students, and independent professionals, tenants are actively seeking self-contained options that offer privacy and convenience. It’s no surprise that granny flats are booming across Victoria in 2025, offering a smart, flexible solution that benefits both homeowners and renters.
At the same time, homeowners with enough land are discovering they can tap into this demand without the complexity of subdividing or purchasing another title.
That’s why more people are investing in granny flats for investment Melbourne suburbs are welcoming through planning reforms and council support.
Understanding the 10% Yield: Let’s Do the Math
Here’s how the numbers work on a typical granny flat project:
Let’s say you build a 2-bedroom, 1-bathroom granny flat, like the Lana 60 from Innovista’s Signature Series.
- Total cost: $208,000 (includes GST and site-related costs)
- Expected weekly rent: $450 to $550 (based on local rental demand)
If you lease it at $500/week, that’s $26,000 per year in gross rental income.
Gross yield calculation:
$26,000 ÷ $208,000 = 12.5%
That’s an incredibly strong return compared to Melbourne’s average:
- Traditional houses in inner suburbs: 2.5% to 3.5%
- Regional properties: 4% to 5.5%
Even after factoring in management fees and basic maintenance, you’re still likely achieving net returns north of 9%, which outperforms most standard residential property investments in Victoria.
This is why so many property owners are turning to rental income from granny flats as a low-risk, high-yield strategy.
Why Granny Flats Offer Strong ROI
What makes these second dwellings so profitable isn’t just their affordability; it’s how they blend speed, function, and demand in a way other property investments can’t easily match.
1. Low Build Cost, High Rentability
A traditional new build in Melbourne might cost upwards of $400,000. A high-spec, standalone granny flat costs half that and still commands competitive rental income. That’s powerful leverage.
2. Fast Turnaround Time
Granny flats by Innovista typically go from approval to handover in 16 to 20 weeks. That means income starts flowing quickly, a massive advantage over full-scale developments that can take 12+ months.
3. Dual Income Without Subdivision
Instead of going through the stress and cost of subdividing land, granny flats offer a second income stream on a single title. This not only simplifies legal ownership but also avoids stamp duty, new land tax, and resale complexity.
4. Lower Risk With Strong Demand
Detached rental dwellings have a unique appeal. Tenants enjoy the privacy of not sharing walls and the functionality of having their own kitchens, bathrooms, and outdoor spaces. This makes them ideal for family members or long-term tenants who stay longer and treat the property like home.
Features Of An Investment-Ready Granny Flat
Not all granny flats perform equally well. If you’re aiming for solid rental income from granny flats, you’ll need to ensure your unit has investor-grade design features, such as:
- Two-bedroom layout (wider rental appeal than 1-bed units)
- Full-size kitchen with appliances (oven, cooktop, rangehood)
- Reverse-cycle air conditioning
- Private entrance and fenced outdoor space
- 7-star energy rating for efficiency
- Hybrid flooring, soft-close cabinetry, and stone benchtops
These aren’t luxury extras, they’re essentials. Tenants pay more for comfort and energy savings, and they stay longer in properties that feel like true homes.
Innovista’s Lana Series, available in both Signature and Luxe packages, includes all of the above, with the added bonus of customisation and design flexibility to suit different blocks and investment goals.
Case Study: 14.6% Yield in Scoresby
In early 2024, a couple in Scoresby partnered with Innovista Group to build a modified Lana 43 G-Flat on their 745 m² suburban block.
- Total cost: $160,000
- Rental income: $450/week
- Time to lease: 1 week after completion
- Yield: 14.6% after year one
- Estimated capital uplift: $150,000 in total property value (based on comparable sales)
This wasn’t a one-off. Similar outcomes have been seen in Werribee, Craigieburn, Bentleigh, and Pakenham, all areas with rental shortages and big demand for smaller homes.
Key Considerations Before You Build
As with any investment, success with granny flats depends on good planning. Before starting, make sure to ask:
- Is your land eligible for a secondary dwelling?
- Does your local council support “as-of-right” construction?
- Is there strong rental demand in your suburb?
- Will this granny flat conflict with future extensions or developments?
Innovista Group offers free site assessments and feasibility reports to answer all of the above, before you commit to anything. Their full-service delivery includes:
- Planning and building permits
- Energy and soil reports
- Custom designs adapted to your block
- Full construction and post-build documentation
This removes the guesswork and red tape, leaving you to focus on your returns.
Beyond Yield: What Else Adds Value?
While cash flow is the headline metric, a well-executed granny flat delivers more than just rent.
Capital Uplift
Adding a compliant second dwelling can boost your main property’s value by $100,000 or more, especially when built to high specs with good access, fencing, and landscaping.
Tax Depreciation
Brand-new builds offer generous depreciation benefits for investors. This includes deductions for structure, appliances, cabinetry, and more. Talk to your accountant for personalised advice.
Family Flexibility
Today it may be a rental, but in the future it could become a space for elderly parents, adult children, or a private guest suite. Granny flats give you financial and lifestyle agility without the commitment of major renovations or extensions.
Why Innovista Group Is the Builder of Choice
Innovista isn’t just a construction company; they’re a developer-grade partner who understands the financial side of building as well as the design.
With over a decade of experience and a reputation for transparent, turnkey service, Innovista offers:
- Fixed-price contracts (no variations, no surprise charges)
- 7-star energy-rated builds
- Fast construction (typically 16–20 weeks)
- Luxe-level inclusions that attract better tenants
- Dedicated project managers from the first consultation to the final handover
For investors who want confidence, clarity, and consistent returns, they’re the ideal team to work with.
Final Thoughts: Big Returns From A Small Footprint
When done right, granny flats are one of Melbourne’s most overlooked, high-performing property assets. In 2025, they offer a rare blend of low-risk investment and high ROI, particularly in suburbs where tenant demand is rising and backyard space is underutilised.
Whether you’re chasing cash flow, capital growth, or future family flexibility, the numbers speak for themselves. With the right design, builder, and plan, rental income from granny flats can outperform traditional investment properties and help you build equity faster.
Innovista Group makes the process easy, reliable, and results-focused. Whether it’s your first second dwelling or part of a broader portfolio, they’ll help you unlock your land’s full potential.
Your future granny flat could be just a conversation away. Contact us and let’s make it happen.
