With interest rates in Australia easing, now is a great time to look at building a granny flat — not just for the extra living space, but for the investment potential. Let’s walk through some example numbers so you can see exactly how much it could cost (and save) you each month. Acrow are starting new build Granny Flats with smart investors every week. Have a look at this custom Granny Flat in San Remo earning 24k per year, this CDC Granny Flat in Newcastle making $27k per year, or this one in Metford generating $26k per year.
The Example Build
Acrow Granny Flats prices start at around $200k in New South Wales and $220k in the ACT. We’ve used a sensible illustration of $250k for our worked example – but its highly possible for you to outlay an even lower initial capital cost. We can do a ballpark quote for you anytime here.
- Build cost: $250,000
- Deposit: 20% ($50,000)
- Borrowed amount: 80% ($200,000) via equity from your existing home
- Interest rate: 3.99% p.a. (variable, interest-only for illustration)
Monthly Repayments at 3.99%
For a $200,000 interest-only loan at 3.99%:
Annual interest = $200,000 × 0.0399 = $7,980
Monthly interest = $7,980 ÷ 12 ≈ $665
Potential Rental Income
As evidenced by our examples in the introduction, a well-built, 2-bedroom granny flat in NSW or the ACT can often rent for $400–$550/week, depending on location and features.
Let’s work on the lower end:
$400/week × 52 weeks = $20,800 per year
That’s about $1,733 per month in gross income.
Before-Tax Cashflow
- Income: $1,733/month
- Interest cost: $665/month
- Positive cashflow before tax: ~$1,068/month
The Tax Advantage – Depreciation
If your granny flat is built as a rental property, the Australian Tax Office (ATO) allows you to claim depreciation on the structure and fittings.
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Capital works deduction: $250,000 × 0.025 = $6,250/year
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Plant and equipment deduction: Sometimes another $2,000–$4,000/year early on
To maximise your tax deductions, it’s important to have a licensed quantity surveyor prepare your depreciation schedule. The Australian Tax Office requires a professionally prepared report to substantiate your claims, and a qualified surveyor can ensure nothing is missed — from capital works to plant and equipment items. Acrow works with trusted, accredited surveyors and can put you in touch with the right professionals to get your schedule completed quickly and accurately. A report will cost you around $600 – another tax deduction perhaps – but is well worth the annual deduction you can get.
What That Means at Tax Time
If your rental income is $18,200 and your interest cost is $7,980:
Operating profit before tax: $10,220/year
Now subtract depreciation:
Lets estimate $7,000 depreciation = $4,220 taxable profit
If you’re on a 32.5% marginal tax rate, tax payable = ~$1,371.50.
That’s much lower than without depreciation — and in some scenarios (with maintenance and other deductible expenses) you could actually report a loss for tax purposes while still being cashflow positive.
Why the Lower Interest Rate Matters
At the previous rate of 5.5%, the same $200,000 loan would cost:
$200,000 × 0.055 = $11,000/year interest = $917/month.
That’s $252 more per month compared to 3.99%. Over a year, that’s $3,024 saved — enough to cover several months of insurance, maintenance, or even part of your rates.
The Bottom Line
With today’s interest rates, a well-located granny flat can:
- Cover its own loan repayments
- Generate extra cashflow
- Deliver significant tax deductions through depreciation schedules
If you’ve been thinking about building, the numbers are looking better than they have in years.
This is not specific financial advise and is provided for illustration purposes only. You should always consult your tax and financial advisors before making a big decision