What our analysis shows
Our calculations, data as of 23 October 2026
- A two-bedroom flat earns a higher net yield than a one-bedroom in 35 of 42 areas. The exceptions, where tenants pay little extra for a second bedroom, are Greater Sydney, South-west Sydney, Brisbane, City of Melbourne, Monash, Wyndham, Adelaide metro.
- Even with the whole build borrowed at 6.2%, the flat stays cash positive in every area we tested, from $4,028 a year in Ballarat to $15,101 on the Gold Coast. That is before principal repayments.
- Self-managing a Sydney flat adds $1,752 a year after tax. It is the largest cost you can remove; insurance and maintenance are much smaller.
- Your tax bracket matters more than most of the running costs: the same Sydney flat leaves $23,703 a year at the 16% rate and $17,134 at 45%.
Cash left after tax with the whole build borrowed, top 8
- Gold Coast (QLD)$15,101 a year
- City of Melbourne (VIC)$12,762 a year
- Newcastle (NSW)$11,996 a year
- Brisbane (QLD)$11,870 a year
- Sunshine Coast (QLD)$11,870 a year
- Eastern Adelaide (SA)$11,617 a year
- Cairns (QLD)$11,459 a year
- Greater Sydney (NSW)$10,984 a year
60 m² flat, loan for the full build at 6.2%, interest only, after running costs and tax at 30%. Principal repayments come on top.
One or two bedrooms
A second bedroom adds about 15 m² and, in our cost model, roughly $41,000 to the build. Whether it pays depends on how much more tenants in your area pay for it. We compared a 45 m² one-bedroom with a 60 m² two-bedroom in every area.
| Area | 1-bed rent | 2-bed rent | Net yield 1-bed | Net yield 2-bed |
|---|---|---|---|---|
| Greater Sydney (NSW) | $550 | $650 | 12.8% | 12.4% |
| South-west Sydney (NSW) | $440 | $500 | 10.0% | 9.3% |
| Brisbane (QLD) | $590 | $650 | 15.4% | 13.8% |
| City of Melbourne (VIC) | $570 | $678 | 14.9% | 14.5% |
| Monash (VIC) | $495 | $589 | 12.7% | 12.4% |
| Wyndham (VIC) | $420 | $420 | 10.6% | 8.5% |
| Adelaide metro (SA) | $474 | $563 | 12.9% | 12.6% |
These are the areas where the one-bedroom wins. Everywhere else the second bedroom paid for itself. The gap is widest in outer suburbs and regional cities, where one-bedroom flats are scarce and rent cheaply while two-bedroom homes rent at close to house prices. In Logan, for example, the median one-bedroom flat rents for $315 and the two-bedroom house for $500. More detail in one versus two bedrooms.
If you borrow to build
We ran every area again with the full build cost borrowed at 6.2% interest. Interest is tax deductible because the money produces rent, so the after-tax cost of the loan is lower than the rate suggests. The weakest five areas:
| Area | Interest / year | Cash after tax / year |
|---|---|---|
| Ballarat (VIC) | $10,497 | $4,028 |
| Wyndham (VIC) | $12,326 | $4,428 |
| Regional SA (SA) | $9,889 | $4,756 |
| Brimbank (VIC) | $12,326 | $5,397 |
| Hume (VIC) | $12,326 | $5,720 |
All of them stay positive on interest alone. On a 30-year principal-and-interest loan the Sydney build costs about $16,169 a year in repayments, of which around $2,529 is principal in the first year. After those repayments about $8,455 a year is left, the after-tax rent of roughly 20 weeks. A rate rise of two points would take $3,080 of that after tax, so the flat still carries itself, but with little to spare on a weaker rent. Ways to finance the build compares a redraw, a construction loan and builder finance.
The costs we deduct
On a $650 a week Sydney flat, two vacant weeks cost $1,300 in lost rent and the running costs come to $5,173 a year, together about 19% of a full year's rent:
- Vacancy: 2 weeks a year with no tenant, which equals one re-letting every two years.
- Agent: 7.7% of rent collected ($2,503). Letting fees and advertising usually come on top.
- Landlord insurance: $650 a year for a small detached dwelling.
- Maintenance: 0.6% of the build cost a year ($1,320). A new flat needs little at first; hot water and appliances come due after ten years or so.
- Water and rates: $700 a year. Council rates are always the owner's cost; water usage can be charged to the tenant only if the flat has its own meter.
Land tax is left at zero by default because it depends on your state and land value. In NSW and Victoria renting out a granny flat can make part of your land taxable. Read granny flat land tax before you sign a lease.
How tax changes it
The flat's profit is added to your income, so the bracket you are in decides how much you keep. For the Sydney flat with no loan:
| Marginal tax rate | Cash after tax / year |
|---|---|
| 16% | $23,703 |
| 30% | $20,532 |
| 37% | $18,946 |
| 45% | $17,134 |
The capital works deduction softens this. You can claim 2.5% a year for 40 years on the capital works part of the cost, the building itself rather than approvals and fees (we take 85%, $187,000 here), so about $4,675 a year, without spending anything. A quantity surveyor's depreciation schedule (around $400–700) documents the figure and usually adds a plant-and-equipment claim for the oven, hot water unit and air conditioner.
If the land is in two names, the rent and deductions split by ownership share. Putting the flat in the name of the lower-income owner is not possible unless that person owns the land.
Results for every area are in rent by area and, tested against paying down a mortgage, in is a granny flat worth it.
This week's worked example
Week of 19 October 2026. A new example, rule and owner report every Monday.
A 40 m² one-bedroom flat with a standard finish on a block with some slope, services 8 m from the house, in Whittlesea: our model puts it at $163,800 turnkey ($144,000–$183,500), or $4,100 per m². At the area's median 1-bedroom bond rent of $375 a week it would return 9.1% net and pay back in 14.2 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 (NSW, 2023): Replies agreed a new granny flat almost never adds its build cost to the sale price; buyers compare it with houses that have the same number of bedrooms.