What our analysis shows
Analysis by Granny Flat Numbers, data as of 23 October 2026
- On cash alone, a rented 60 m² flat beat a 6.2% mortgage offset in all 42 areas we tested. That comparison flatters the flat, because the building wears out while money in the offset does not.
- Once we charge for wear (the construction cost spread over 40 years, 2.1 points a year), the flat still beat the offset in 26 of 42 areas. Best: Gold Coast at 9.8%; worst: Wyndham at 4.4%.
- With rent 10% lower and the build 15% dearer, the flat beat the offset in only 4 areas. A granny flat is a good use of money where rents are strong, and close to break-even elsewhere.
- In NSW and Victoria a rented flat can also make part of your land taxable and part of a future sale subject to capital gains tax. On high-value land that can wipe out the margin over the offset.
Return of a rented 60 m² flat after tax and wear, best areas
- Gold Coast (QLD)9.8%
- Cairns (QLD)9.0%
- City of Melbourne (VIC)8.6%
- Newcastle (NSW)8.6%
- Eastern Adelaide (SA)8.4%
- Brisbane (QLD)8.2%
- Sunshine Coast (QLD)8.2%
- Wollongong (NSW)7.9%
Cash after agent fees, insurance, maintenance and tax at 30%, less wear, divided by the build cost. Compare with 6.2%, a typical home-loan rate saved through an offset account.
The offset test
If you have $220k available, you can put it in your mortgage offset and save 6.2% a year in interest, with no tax, no tenant and no maintenance. Or you can build a flat. For each area we took the rent from government bond data and the build cost from our model, deducted running costs and tax at 30%, then took off 2.1% a year for wear, and compared the result with the offset:
| Area | Cash yield after tax | After wear | vs 6.2% offset |
|---|---|---|---|
| Gold Coast (QLD) | 11.9% | 9.8% | +3.6 pts |
| Cairns (QLD) | 11.1% | 9.0% | +2.8 pts |
| City of Melbourne (VIC) | 10.7% | 8.6% | +2.4 pts |
| Newcastle (NSW) | 10.7% | 8.6% | +2.4 pts |
| Eastern Adelaide (SA) | 10.6% | 8.4% | +2.2 pts |
| Brisbane (QLD) | 10.3% | 8.2% | +2.0 pts |
| Sunshine Coast (QLD) | 10.3% | 8.2% | +2.0 pts |
| Wollongong (NSW) | 10.1% | 7.9% | +1.7 pts |
| Western Adelaide (SA) | 9.8% | 7.7% | +1.5 pts |
| Townsville (QLD) | 9.6% | 7.4% | +1.2 pts |
| Merri-bek (VIC) | 9.5% | 7.4% | +1.2 pts |
| Adelaide metro (SA) | 9.4% | 7.3% | +1.1 pts |
| Launceston (TAS) | 9.4% | 7.2% | +1.0 pts |
| Greater Sydney (NSW) | 9.3% | 7.2% | +1.0 pts |
| Monash (VIC) | 9.3% | 7.2% | +1.0 pts |
| Southern Adelaide (SA) | 9.2% | 7.1% | +0.9 pts |
| Central Coast (NSW) | 9.2% | 7.1% | +0.9 pts |
| Hills and north-west (NSW) | 9.2% | 7.1% | +0.9 pts |
| Darebin (VIC) | 9.2% | 7.0% | +0.8 pts |
| Whitehorse (VIC) | 9.2% | 7.0% | +0.8 pts |
| Toowoomba (QLD) | 8.8% | 6.7% | +0.5 pts |
| Rest of NSW (NSW) | 8.7% | 6.5% | +0.3 pts |
| Knox (VIC) | 8.6% | 6.5% | +0.3 pts |
| Greater Hobart (TAS) | 8.4% | 6.3% | +0.1 pts |
| North-west coast (TAS) | 8.4% | 6.3% | +0.1 pts |
| Northern Adelaide (SA) | 8.3% | 6.2% | +0.0 pts |
| Moreton Bay (QLD) | 8.3% | 6.2% | -0.0 pts |
| Greater Bendigo (VIC) | 8.2% | 6.1% | -0.1 pts |
| Greater Geelong (VIC) | 8.0% | 5.9% | -0.3 pts |
| Western Sydney (NSW) | 8.0% | 5.9% | -0.3 pts |
| Logan (QLD) | 7.9% | 5.8% | -0.4 pts |
| Ipswich (QLD) | 7.9% | 5.8% | -0.4 pts |
| Casey (VIC) | 7.9% | 5.7% | -0.5 pts |
| Frankston (VIC) | 7.9% | 5.7% | -0.5 pts |
| Redland (QLD) | 7.7% | 5.6% | -0.6 pts |
| Whittlesea (VIC) | 7.5% | 5.4% | -0.8 pts |
| Regional SA (SA) | 7.3% | 5.2% | -1.0 pts |
| Hume (VIC) | 7.2% | 5.1% | -1.1 pts |
| South-west Sydney (NSW) | 7.1% | 5.0% | -1.2 pts |
| Brimbank (VIC) | 7.0% | 4.9% | -1.3 pts |
| Ballarat (VIC) | 6.7% | 4.6% | -1.6 pts |
| Wyndham (VIC) | 6.6% | 4.4% | -1.8 pts |
If rent is lower and the build dearer
Our build costs are typical figures, and rents are medians; half of all flats rent for less. We reran the test with rent 10% below the median and the build 15% above our estimate. The flat then beat the offset in 4 of 42 areas. The ones that dropped out are mostly outer suburbs and regional cities where two-bedroom rents are lowest.
What the yield leaves out
- Wear is in our test above: about $4,675 a year on the Sydney flat. A well-kept flat may last longer than 40 years, which would improve the result.
- Land tax. Renting the flat can make part of your land taxable in NSW and Victoria, and may reduce the exemption in South Australia. On land worth $1.5 million or more this can cost thousands a year. See granny flat land tax.
- Capital gains tax. When you sell, the rented share of the property may be taxable. See capital gains tax.
- Your yard and privacy. A 60 m² flat with its own outdoor space takes 100 m² or more of the backyard, and a tenant lives next to you.
- Your time. Even with an agent, a second dwelling on your land is a second set of repairs and tenant changes.
When the numbers are not the point
Many flats are built for a parent or an adult child. Then the comparison is with what the alternative housing costs: rent elsewhere for a child, or a retirement village entry contribution or aged care for a parent. A flat that lets a parent stay near family for five more years is often worth more than its rental yield. See a granny flat for your parents.
Our verdict by situation
| Situation | Our view |
|---|---|
| Flat block, sewer close, strong local rents | Usually worth it; the return beats paying down the mortgage |
| Steep or bushfire-rated block | Check carefully; site costs can add $50,000+ and cut the yield by a third |
| High-value land in NSW or Victoria | Price the land tax first; it can halve the advantage |
| Planning to sell within five years | Rarely worth it for the money alone; buyers seldom pay the build cost back |
| Housing a parent or adult child | Judge it against their other housing options, not against rent |
This week's worked example
Week of 19 October 2026. A new example, rule and owner report every Monday.
A 60 m² two-bedroom flat with a standard finish on a steep block, services 12 m from the house, in Greater Hobart: our model puts it at $226,000 turnkey ($199,000–$253,000), or $3,770 per m². At the area's median 2-bedroom bond rent of $520 a week it would return 9.4% net and pay back in 13.8 years after tax.
Rule check: NSW land tax thresholds are frozen from 2025 at $1,075,000 (general) and $6,571,000 (premium); the general rate is $100 plus 1.6% of value above the threshold.
From an owner (Australia, 2018): A renter counted about 10 new granny flats among 100 listings in one area, at $250–400 a week, against $300–450 for older standalone two-bedroom houses.
Questions people ask
Is building a granny flat a good investment?
After tax and an allowance for wear, a rented flat beat a 6.2% mortgage offset in 26 of 42 areas in our data, but in only 4 under a stress test with lower rent and a dearer build. It is a weaker investment on high-value land where it triggers land tax, and where you would lose yard space you value.
How long does a granny flat take to pay for itself?
In our data, 8.4 to 15.2 years after tax with no loan, depending on the area.
Does a granny flat add value to a house?
Usually less than it costs to build. Buyers price it like extra bedrooms and income, not at replacement cost. See our page on whether a granny flat adds value.