Insights · Granny flats · Investment
Granny Flat Rental Yield: The Honest Sydney Maths
A granny flat's yield looks huge because the land looks free. It isn't, quite.
You'll see double-digit yields quoted for granny flats everywhere. Some of that is real. Most of it comes from dividing rent by the build cost and ignoring everything else. Here's how I'd run the numbers for a client, including the parts the brochures skip.
Short answer
What rental yield does a granny flat return in Sydney?
Measured on build cost alone, a granny flat's gross yield often lands in low double digits, because you already own the land. That's a marginal yield. Subtract outgoings like insurance, repairs, management, extra water and vacancy for a net figure. Rawlinsons-based costing puts a 60m² two-bedroom flat in the mid-$100,000s before site works, connections and price rises since 2021.
Written and reviewed by Oliver Alameri
Licensed builder, NSW Contractor Licence 487805C · Founder, Buildana
Fact-checked
Start with a real build cost
Rawlinsons doesn't publish a 'granny flat' line. So I build the number up. Its 2021 Sydney rate for a small brick veneer ground-floor addition, 50 to 75 square metres and no wet areas, was $1,825 to $1,965 a square metre. Add one kitchen at $19,500 to $22,000. Add one bathroom at $23,500 to $26,500.
For a two-bedder at the full 60 square metres, that's roughly $152,000 to $166,000 in 2021 dollars. Then come the things those rates leave out: site preparation, the sewer and water connections, electrical upgrades to the main switchboard, driveways and paths, fencing, landscaping, approval and certifier fees. Plus five years of construction cost growth. Quite a list.
That's why a realistic turn-key price in 2026 sits well above the headline 'from' figures you'll see advertised.
- Shell rate per square metre for a small single-storey building
- Kitchen and bathroom fit-outs added on top
- Site works, connections and approvals priced separately
- Escalation from the 2021 base to today
Marginal yield versus whole-property yield
Here's the trick behind the big numbers. If you already own the house, the granny flat's cost is only the build. Divide annual rent by that and you get the marginal yield: what the new money earns. That's a fair question to ask, and often the answer is very good.
But the flat also uses up backyard, which has value. And a buyer of the whole property later won't necessarily pay the full build cost back. So look at it two ways: the marginal return on the money you spend now, and what happens to the value and yield of the whole property over time.
Illustrative only: a $220,000 all-in flat renting at $500 a week earns $26,000 a year, about 11.8% gross on the build. Knock off $4,000 for insurance, repairs, a management fee and a fortnight or so without a tenant, and the net marginal yield is about 10%. Impressive. Now remember it's attached to a property that might be worth $1.3 million.
The marginal yield tells you if the flat is worth building. The whole-property yield tells you if the investment is.
Need a real build cost for your yield sum?
Send me the address and your rough plan. I'll price the flat, the site works and the connections, which gives your return sum a solid footing instead of a guess.
0476 300 300The outgoings people forget
Separate metering. Tenants expect their own electricity bill. You'll want water usage split too. Plan the meters into the build; retrofitting is dearer.
Insurance. Your home policy may not cover a rented secondary dwelling. You'll likely need landlord cover for the flat, and your insurer needs to know it exists.
Repairs and replacement. A hot water system, an oven, a split system and carpets will all need replacing on a rental timeline. Budget for it every year rather than being surprised in year eight.
Your own time, or a property manager's fee. Either is a real cost.
Tax, land tax and the main residence
Renting part of your home out has consequences beyond income tax on the rent. The capital gains tax main residence exemption can be reduced for the part of the property used to earn income. Depending on how the property is used, land tax treatment can change as well.
On the plus side, a new granny flat carries capital works deductions and depreciable fittings, which can offset part of the rental income.
The rules depend on how you use the property and your own circumstances. Speak to your accountant before you build, and check with Revenue NSW on land tax. It's a short conversation that can change the whole calculation.
When the numbers stop working
On a sloping, rocky or flood-affected lot where site costs balloon. On a block where the flat eats the only good piece of garden, dragging down what the main house is worth. In a suburb where granny flat rents are low relative to build cost.
And when the design ignores tenants. Two proper bedrooms, a real laundry, storage, some private outdoor space and a separate entry rent well. A glorified studio with a shared path through your backyard doesn't.
Your granny flat yield checklist
Fill these in with real numbers before you sign anything.
- 01
Total cost of the flat, site works and connections included
- 02
Achievable weekly rent from two local agents
- 03
Annual outgoings: insurance, repairs, management, vacancy
- 04
Separate metering planned into the build
- 05
Accountant's view on income tax and capital gains tax
- 06
Revenue NSW position on land tax for your property
Granny flat yield questions
Is a granny flat a good investment?
On many Sydney lots, the marginal return on the build cost is strong. It depends on site costs, local rents, the design, and how the flat affects the main house's value and your tax position.
How much does a granny flat cost to build in Sydney?
Working up from Rawlinsons, a 60m² two-bedroom flat was around $152,000 to $166,000 in 2021 dollars before site works, connections, fees and cost growth. Today's turn-key price is higher.
Do I need separate meters for a rented granny flat?
It's strongly recommended. Separate electricity metering lets tenants pay their own bills, and separated water usage makes billing fair. Both are easier to build in than add later.
Can renting a granny flat affect my capital gains tax exemption?
It can. Using part of your home to produce income may reduce the main residence exemption for that part. Get advice from your accountant for your circumstances.
Sources and references
Costs are from the Rawlinsons handbook with the local cost index applied; rules and timeframes are checked against the sources below.
Build the flat once the numbers are real.
A granny flat priced properly, designed for tenants, and built to last on a rental timeline.