Not all properties deliver the same granny flat returns. Two similar blocks in the same suburb can produce vastly different investment outcomes. Understanding what makes a site truly suitable separates profitable projects from disappointing ones.

The Sweet Spot: 50-150km From Melbourne’s CBD

The best granny flat returns don’t come from inner Melbourne or the outer fringes. They come from a specific distance band that balances land costs with rental demand.

Properties within 50 to 150 kilometres from Melbourne’s CBD consistently deliver the strongest performance. As Theo Stone explains: “It’s the sweet spot. Close enough for strong rental demand, far enough out that your numbers actually work. That’s where the 10%+ yields live.”

Inner Melbourne properties cost too much for the rental returns to make sense. A $1.2 million Brunswick property might rent its granny flat for $450 weekly—decent income, but only 2% yield.

Compare that to Pakenham or Melton. Your $600,000 property with a $210,000 granny flat can achieve similar $400-450 weekly rents, delivering substantially better percentage returns.

The outer fringes beyond 150km offer cheaper land but often lack employment, transport, and population growth that drives consistent rental demand.

Infrastructure: Follow The Train Lines

Rental demand follows infrastructure. Properties near railway stations command premium rents and attract quality tenants reliably. A granny flat within walking distance of a station appeals to young professionals, students, and families.

Bus routes matter too, particularly in areas without train access. Properties on major bus corridors connecting to employment centres attract tenants who don’t own cars.

Watch infrastructure announcements closely. New train lines, station upgrades, and major road projects signal where rental demand will strengthen. Buy before these improvements complete to capture value growth.

Employment Centres Drive Demand

Follow the jobs to find rental demand. Outer Melbourne growth corridors like Werribee, Pakenham, and Craigieburn have evolved beyond bedroom communities. They now host significant local employment in manufacturing, logistics, healthcare, and services.

Properties near universities create reliable demand. Deakin’s Burwood campus, Monash’s Clayton campus, and La Trobe’s Bundoora campus all anchor strong rental markets.

Healthcare precincts generate demand from nurses and allied health workers. Box Hill Hospital, Dandenong Hospital, and Casey Hospital create rental markets in surrounding areas.

Industrial hubs need workers who need housing. Dandenong South, Laverton North, and Truganina host massive industrial estates. Granny flats within reasonable distance appeal to shift workers and trades people.

Council Attitudes Matter Enormously

Some councils embrace granny flats as practical housing solutions. Others create obstacles at every turn.

Progressive councils have streamlined approval processes and provide clear guidelines. Other councils impose strict requirements and sometimes reject applications on technicalities.

As Theo Stone advises: “People dive in without checking their specific council’s rules first. Every council is different. Do your homework before you fall in love with a design.”

Check how many granny flat applications each council approves annually. High numbers indicate acceptance. Talk to local builders about their council experiences.

Block Characteristics That Actually Matter

Minimum size: Generally 400-500m², though requirements vary by council.

Shape: Regular rectangular blocks allow efficient placement. Narrow blocks limit design choices.

Orientation: North-facing blocks enable better solar access and energy efficiency.

Slope: Flat blocks simplify construction. Moderate slopes work but increase costs. Severe slopes might make projects economically unviable.

Services: Properties with electricity, water, and sewer running past the proposed granny flat position connect cheaply. Services on the opposite side of the block dramatically increase costs.

Theo Stone emphasises: “Foundations, drainage, and structural integrity—the stuff you can’t see. Anyone can make something look pretty, but engineering is what lasts 50 years.”

Contact utility providers before purchasing to understand connection requirements and costs.

Demographics and Target Markets

Different locations attract different tenant types. Suburbs with young families create demand from relatives helping with childcare. Areas with older populations see demand from downsizers or carers.

Student areas need different features than family areas. Students prioritise affordability and location. Families want storage, outdoor areas, and quiet neighbourhoods.

Look at demographic trends, not just current snapshots. Areas experiencing population growth create expanding rental markets. Check median income levels—they indicate what rent the local market can support.

Neighbourhood Character and Market Depth

Drive around potential suburbs looking for existing granny flats. Their presence indicates council acceptance and market normalisation.

Properties near parks, shops, schools, and recreation facilities rent more easily at higher rates. Quiet streets in established areas appeal to broader tenant pools.

Check recent sales volumes. Areas with regular property transactions indicate healthy markets. Rental vacancy rates reveal market strength—low vacancies indicate strong demand.

Future Growth Indicators

Smart investors buy where growth is coming, not where it’s already happened.

Look for:

• Rezoning announcements
• Major infrastructure projects (train stations, freeways, hospitals)
• Population growth forecasts
• New schools and shopping centres

As Theo Stone notes: “Market timing matters less than personal timing. Build when it solves your problem or achieves your goal.”

Putting Knowledge Into Action

Every factor matters, but not every property needs to tick every box. Properties strong in most areas can succeed despite weaknesses in one or two.

Investors prioritising maximum yields focus on the 50-150km sweet spot with strong rental fundamentals. Those seeking capital growth might accept lower initial yields in improving areas.

Owner-occupiers building for family have different priorities. Council ease and neighbourhood character might matter more than maximum yields.

Ready to find the perfect property for your granny flat? Contact Innovista today for expert guidance on site selection and building granny flats that deliver the returns you’re after.