Last reviewed: August 2026
Rental yield on a granny flat is the annual rent divided by what it cost to build, expressed as a percentage. The calculation is simple. The reason most published yield figures are useless is that they use someone else’s rent, someone else’s build cost, and leave out the ongoing costs entirely.
This article shows you how to run the numbers with your own figures, and what to include so the answer means something.
The calculation
Gross yield = annual rent ÷ total build cost × 100
Net yield = (annual rent − annual costs) ÷ total build cost × 100
Gross yield is the number people quote. Net yield is the number that reflects what you actually keep. The gap between them is larger than most people expect.
Getting the three inputs right
Input 1: The rent
Do not use a general figure. Do this instead:
- Search current rental listings in your suburb for granny flats, secondary dwellings, and one and two bedroom units
- Filter to the size you are building
- Take the median of what is currently listed, not the highest
- Adjust down slightly if your granny flat will have less privacy, no dedicated parking, or a shared entry
Listed rent and achieved rent are not the same thing. A local property manager can tell you what is actually being signed in your suburb, and that conversation costs nothing.
Input 2: The total cost
Not the advertised build price. The total, which means:
- The build
- Site costs, including excavation, rock and retaining
- Approvals, survey, soil test, engineering, BASIX
- Utility connections
- Council contributions
- Driveway, fencing, landscaping
- Floor coverings and window furnishings
If you use the advertised price instead of the total, your yield will look better than it is.
Input 3: The ongoing costs
The ones most calculations skip.
| Ongoing cost | Notes |
| Landlord insurance | Separate from home insurance |
| Property management | If you use an agent |
| Repairs and maintenance | Budget annually, it is not zero |
| Council rates impact | May increase |
| Water charges | Depends how it is metered and your tenancy terms |
| Vacancy | Assume some weeks empty each year, not zero |
| Land tax | Depends on your total landholdings and circumstances |
| Income tax on the rent | The rent is assessable income |
Vacancy is the one most often set to zero in optimistic calculations. Assuming a property is tenanted 52 weeks a year, every year, is not realistic.
A worked example, using your numbers
Fill in your own figures rather than borrowing anyone else’s.
| Line | Your number |
| Weekly rent, from current local listings | $ |
| Annual rent, weekly × 52 | $ |
| Less assumed vacancy, say 2 to 4 weeks | $ |
| Realistic annual rent | $ |
| Less annual ongoing costs from the table above | $ |
| Net annual income | $ |
| Total build cost, all in | $ |
| Gross yield = annual rent ÷ total cost × 100 | % |
| Net yield = net annual income ÷ total cost × 100 | % |
Run it twice. Once with the rent you hope for, once with the rent at the lower end of current listings. If the project only works at the optimistic number, that is worth knowing before you build.
What the yield does not capture
A yield figure ignores several things that matter.
- Capital value effect. Covered in our article on whether a granny flat adds value.
- Tax treatment. Depreciation, deductions and capital gains implications can materially change the real return. This is accountant territory.
- Non-financial value. If the granny flat houses a parent or an adult child, the return is not measured in yield at all. Housing a family member who would otherwise be paying rent elsewhere has real value that never appears in the calculation.
- A single tenancy in a single property is not a diversified position.
Why we are not publishing a yield figure
You will find plenty of granny flat pages quoting a specific percentage return.
We are not going to, because the number depends on your suburb’s rent, your block’s site costs, your finance position and your tax circumstances, and any figure published without those is a marketing number rather than a forecast. Two identical granny flats a few suburbs apart can produce materially different yields.
What we can do is give you an accurate total cost for your block. That is one of the three inputs, and it is the one a builder is actually qualified to provide.
Frequently asked questions
What is a good rental yield for a granny flat?
That depends on what you are comparing it to and what your alternatives are. Rather than chasing a benchmark, run the calculation above with your real numbers and take it to a financial adviser or accountant who can weigh it against your situation.
Should I use gross or net yield?
Net, for decision making. Gross yield is useful for a quick comparison between options, but it ignores insurance, management, maintenance, vacancy and tax, and those are real money.
How much vacancy should I assume?
Talk to a local property manager about typical vacancy in your suburb for the size you are building. Assuming zero vacancy will overstate your return.
Can I claim depreciation on a granny flat?
Generally there are depreciation entitlements on a newly built income-producing dwelling, but how it applies to you depends on your circumstances. A quantity surveyor prepares the schedule and an accountant advises on your position.
Does renting to a family member change things?
It can, particularly for tax purposes, and arrangements below market rent are treated differently. Speak to an accountant before setting up that kind of arrangement.
Get the cost input right
The one number in this calculation that a builder can give you accurately is the total cost for your block. Get that right and the rest of the maths is yours to run.
Book a site assessment, or call BlueGum on 1300 060 651.
BlueGum Granny Flats is a licensed NSW builder, licence number 247388C. This article is general information and is not financial, taxation or investment advice. It does not take your circumstances into account. Speak to a qualified accountant or licensed financial adviser before making an investment decision.
