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This trick could double your rental income

Tony Yoo
·2-min read
Australian banknotes growing in plant pots.
How about getting double the income from your investment? (Image: Getty)

Real estate investing is a national pastime in Australia, but few are aware of a trick that could double the rental income for landlords.

Sydney pharmacist Hansel Yuen told Yahoo Finance that his weekly rental income went from $320 to $630 after building a small "granny flat" in the backyard of his investment property.

He bought his western Sydney house in 2012 for $345,000, specifically looking for enough yard space to pull off the idea.

"We targeted this particular house and land because the land size was over 600 square meters but only had a small house on it," he said.

"Including planning and regulation fees the granny flat cost $120,000 to build from start to finish and was completed in approximately 3 months."

So the rental yield went from 4.8 per cent to 9.5 per cent in a matter of weeks.

Many outer suburban Sydney and Melbourne councils now have rules allowing the construction of garden flats without the hassle of development approvals, if they meet certain criteria.

Those incentives were brought in to increase housing stock for a fast-growing population.

Garden flats built this way generally can't be subdivided into a second property, so will always remain under one title.

But if you don't mind these caveats, it's a cheap and easy way to supercharge returns on your investment.

Plus depreciation on a new income-producing building can provide tax benefits.

Yuen advises thinking carefully about the size of the granny flat so that one doesn't spend too much in proportion to the additional income that'll come in later.

"The rental yield difference between a one and two bedroom granny flat is not great.," he said.

"Consider building just a one bedroom granny flat if the capital cost of building is substantially different."

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