#326: All Things Granny Flats – Insights on Investment, Lending and Lifestyle
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#326: All Things Granny Flats – Insights on Investment, Lending and Lifestyle
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About this listen
🎙️ In this episode of The Property Trio, Dave Johnston, Cate Bakos, and Mike Mortlock unpack a fantastic listener question from Jade about granny flats in Melbourne. With her mum considering upsizing and building a $250,000 granny flat for multi-generational living, Jade wanted to know: is it a smart value-add or just an expensive lifestyle decision?
🏡 Cate’s Take – Lifestyle Over Capital Growth
Cate kicks off by stressing the key distinction between lifestyle value and market value. Granny flats can be brilliant for families — providing affordable housing for parents, in-laws, or adult kids — but they rarely deliver strong capital growth. Most mainstream buyers in Melbourne simply prefer a bigger backyard over a second dwelling, and in some cases, granny flats can even detract from resale appeal. Cate highlights that the decision must come down to family priorities rather than assumptions about adding financial value.
💰 Mike’s Numbers – Costs, Yields & Depreciation
Mike digs into the data. While Sydney has seen investors boost yields with granny flats, Melbourne’s stricter planning rules make it harder. With build costs often ranging from $150,000 to $300,000, the risk of overcapitalisation is real. For family use, there’s no rental income to offset expenses, and lenders generally don’t assign much extra value to granny flats unless fully approved and rentable. There can be depreciation benefits, but only if income is being generated. ⚖️ Regulations – Small Second Homes vs Dependent Person’s Units
A major theme of the discussion is Victoria’s new planning changes. Cate explains the difference between “Small Second Homes” (up to 60m², rentable, no planning permit needed in most cases) and “Dependent Person’s Units” (for family use only, often requiring removal when no longer occupied). Understanding these distinctions is vital — the wrong choice could trigger compliance headaches, fines, or even council orders.
👨👩👦 The Verdict – Family First, Investment Second
The Trio wrap up with clear advice: granny flats can be fantastic for family needs — affordable, practical, and supportive of multi-generational living. But from an investment perspective, they’re rarely a capital growth driver in Melbourne. For Jade, the decision should hinge on lifestyle benefits, not financial returns.
And our gold nuggets!.....
Cate Bakos's gold nugget: The mainstream market preferences must be considered when weighing up overcapitalisation threats.
Mike Mortlock's gold nugget: Mike considers the cost-benefit proposition of a granny flat build. His live modelling suggests a payback period of 16 years; a significant amount of time.
David Johnston's gold nugget: "Go and talk to anyone you know who has built a granny flat, and find out mroe about their experience, return on investment, and their overall outcome."
Show notes: https://www.propertytrio.com.au/2025/09/07/granny-flats/
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