Why Granny Flats Are the Smartest Investment Property in 2025

As Australia grapples with rising property prices and shifting demographics, savvy investors are turning their attention to one of the most underestimated real estate opportunities: granny flats. In 2025, these compact, self-contained dwellings aren’t just a secondary feature of a home, they’re a primary investment strategy. Here’s why granny flats, especially in Melbourne and regional Victoria, are becoming one of the most sought-after strategic property investments available.

What Are Granny Flats?

Granny flats, also known as small secondary dwellings (SSDs) or G-Flats, are self-contained homes typically located on the same lot as a primary residence. Ranging from 1-bedroom to 2-bedroom layouts, they include their own kitchen, bathroom, living area, and private entrance.

Modern granny flats like Innovista Group’s Lana Series have evolved from simple backyard cabins into high-end mini homes, complete with luxury finishes and full compliance with local building regulations, giving the primary home on the lot a run for its money.

Why Granny Flats Outperform in 2025’s Investment Market

High-Yield Rental Returns

One of the biggest appeals of granny flats is their income potential. In the Melbourne region, investors are regularly seeing rental returns exceeding 10%. With housing demand skyrocketing and affordable rentals dwindling, granny flats provide a lower entry point for tenants and a high cashflow opportunity for landlords.

Compared to traditional rental properties, granny flats:

• Requires less capital to build
• Yield higher rent-to-cost ratios
• Have shorter construction timelines (e.g,. 16–20 weeks for Innovista’s Lana 60)

Dual Asset Leverage

Building a granny flat creates an instant dual-income property. You can live in the main house and rent the flat, or vice versa. This flexibility attracts:

• Multi-generational families
• Downsizers
• Rentvestors

With Innovista’s 2-bedroom Lana 60 priced at $208K–$240K, it offers significant returns compared to the cost of purchasing an additional standalone property.

Demand Is Growing

As Melbourne’s population continues to expand and rental affordability becomes more strained, the demand for compact, private, and efficient homes is rising. Granny flats are:

• In-demand by singles, couples, retirees, and students
• Ideal for Airbnb or short-term accommodation in tourist or commuter suburbs
• Frequently prioritised in government incentives or zoning reforms

Cost-Effective Land Utilisation

If you already own a home with a sufficiently sized block, a granny flat is the smartest way to capitalise on your land. There’s no need to purchase another title or pay stamp duty/ land tax & enter into even more large debt.

You’re converting your backyard into a fully functional income stream, boosting both cash flow and property value.

How Much Can You Earn from a Granny Flat in Victoria?

In Melbourne’s middle-ring suburbs, investors can expect to earn between $400–$550/week from a 2-bedroom granny flat, depending on location, finish, and tenant type. That’s a potential annual return of $26,000+ from a structure that cost ~$208,000 to build.

Using this model:

• Gross yield = $26,000 / $208,000 = 12.5%
• Net yield (after minimal upkeep) = still higher than many traditional residential returns

Case Study: Innovista’s Lana 60 Model

The Lana 60 is a premium 2-bedroom, 1-bathroom granny flat by Innovista Group. Available in both Signature and Luxe finishes, it offers:

• 60m² of architecturally optimised space
• Full kitchen with induction cooktop and premium benchtops
• Frameless walk-in shower and European laundry
• Heat pump hot water system
• Reverse cycle heating and cooling

Build time: 16–20 weeks
Price: $208,000 (Signature) or $240,000 (Luxe) – inclusive of GST and premium inclusions

This makes the Lana 60 one of the highest-optioned yet most affordable granny flats available in Victoria, and indeed the country.

Who Should Invest in a Granny Flat?

1. Residential Property Investors

Looking to increase rental yield without purchasing more land or properties? Granny flats are a fast way to boost income and capital value.

2. Owner-Occupiers with Land

If you own a free-standing home within 50–150km of Melbourne, you can unlock income or house extended family without disrupting your main dwelling.

3. First-Time Investors

Those looking for a low-risk, high-yield entry into property investing can use a granny flat as their launchpad.

4. Increase your borrowing power

It might seem counterintuitive, but adding a granny flat can actually boost your borrowing capacity. With many returning over 10% per annum, a well-designed, positively geared unit increases your income, which lenders consider when assessing your ability to finance future investments.

Final Thoughts: The Future Is Modular, Compact, and Profitable

Granny flats are no longer an afterthought, they’re central to smart property investing in 2025. With minimal barriers to entry, strong rental demand, and modern design standards, they offer a winning formula for income generation and long-term growth.

Whether you’re looking to generate passive income, create a home for extended family, or improve your property’s market value, investing in a high-quality granny flat like the Lana 60 is one of the most strategic moves you can make today.

Your future granny flat could be just a conversation away. Contact us and let’s make it happen.