A granny flat is a self-contained secondary dwelling on the same title as your house. Built right, in a planning-friendly state, on a high-rent suburb, payback is typically 8–12 years. Built poorly, in a low-rent area, with vacancy issues — it can stretch past 20.

Two returns, not one

Cash flow return — annual rent minus ongoing costs (rates, insurance, maintenance, property management, vacancy reserve), divided by build cost. Typical: 5–9% gross, 3–6% net.

Capital uplift — a $150,000 granny flat might add $80,000–$150,000 to the property's value, depending on local demand for dual-income properties. Banks and valuers vary in how much credit they give. Don't bank on a 1:1 valuation lift; treat any uplift as a bonus.

Ongoing costs people forget

Council rates may rise (some councils charge a separate rate for secondary dwellings). Insurance jumps — your home + contents policy needs upgrading to landlord coverage. Property management is 7–9% of rent in most cities. Maintenance reserve: budget 1% of build cost per year. Vacancy: 4–8% of annual rent depending on suburb.

Tax angle

Rental income is taxable, costs are deductible (rates, insurance, interest on borrowed funds, depreciation). The granny flat triggers partial loss of CGT main-residence exemption — a $50,000+ tax hit when you sell, depending on holding period. Talk to a tax adviser before building. The 2021 capital gains exemption for formal granny flat agreements with elderly relatives is a separate (non-rental) carve-out.

Approval is the bottleneck

NSW: SEPP (Affordable Rental Housing) makes complying granny flats fast (10-day CDC). QLD: most councils have streamlined paths. VIC: hard — DA required almost everywhere, slow. Check before you commit. See MoneySmart — Property investment for the broader picture, and your local council planning department for actual rules.