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DUPLEX INVESTMENT
 

Friday 28 June 2019

 

Duplexes: whether side-by-side or top-and-bottom, building two homes for the price of one might just be the best investment you can make

Retailers have long appealed to people’s sense of thriftiness by drawing us in with the “buy one get one free” advertisements, but does the same sense hold true when it comes to housing? We believe so.

A duplex, or dual occupancy residence, is a relatively straightforward concept: two dwellings that share a roof but are divided by a wall. Each dwelling has its own entrance, yard, and facilities.

Running the numbers, it is common to see that building a duplex as opposed to a freestanding home requires more of an upfront investment. However, if you compare the costs of building a duplex to the cost of building two single houses, and calculate in the price of two separate lots, its quickly apparent that duplexes can offer more bang for your buck. To properly see the potential for profit though, you’ll want to determine the investment by weighing the benefits and the hidden costs associated.

Let’s start with the benefits. Although duplexes can share one legal title, it appeals to investors to subdivide into two separate titles so that each home can be sold separately. Paul Bieg, a director of Duplex Invest, believes that by making this title separation, investors are adding value to the property after development.  “Those sorts of development wouldn’t exist unless there’s the potential to make money,” he said.

Another thing that lures investors to build duplexes, according to Swarup Dutta, founder of Au Architecture, is the ability to collect two rental incomes from one asset. Dutta points out that rental return is often above average and explains “The yield is higher. You get a higher square-metre rate, because you’re not wasting too much of the block.”

Suresh Patel, one of Duplex Invest’s clients, agrees that the rental return yield on duplexes is an appealing benefit. In fact, Patel just completed a project in Port Macquarie. After purchasing the land, construction materials, labor, and fees for the development application, subdivision and strata titling, he paid $621,346. In March 2018, the property valued at $880,000 which means that in just one year, Patel received over $250,000 in equity, and each subsequent month he collects over $3,000 in rent. Patel asserts, “Building a duplex creates equity and at the same time, it’s a higher rental return as well”.

So, what are the hidden costs of building a duplex you might wonder. Well, duplexes often need large, broad, or dual-frontage blocks of land, and additional zoning to subdivide the acreage into two distinct lots. Given the size of property needed, prices are typically at premium which in the end mitigates some of the profit.

Dutta recommends that investors also plan on budgeting for consulting fees to planners, as subdividing property isn’t as simple as it sounds. Bieg too, points out that the cost of this process comes as a surprise to many buyers. “That portion is between $40,000 and $50,000,” he cautions. 

Building a dual occupancy residence with a partner developer like We Develop, means those hidden costs and higher initial investment are taken out of the equation altogether. The company will absorb the construction and administrative costs allowing you to get the most out of dual occupancy ownership without the risk.

To ensure that your investment in a duplex is profitable, you’ll want to do a few things. First, you should estimate the value of each completed dwelling by comparing the price and costs of recent sales in the area.  Second, location, location, location. You’ll want your duplex to grow in value as time goes on, rather than diminish in use. To do this, be sure to build in an area that’s primed for a housing boom. Miriam Sandkuhler, a buyer’s agent and the founder of Property Mavens, believes that if you purchase property close to amenities, public transport, and recreational opportunities you’ll maximize your chances of the duplex growing in value.

Location isn’t only paramount when it comes to the growth of a duplexes value though, it also affects what type of duplex should be built. Sandkuher suggests that “If you’ve got low land value you don’t want to over capitalize on the quality of the build.” Meaning, that the quality of the duplex should reflect the land’s value and that high land values carry a market expectation of high standards. Sandkuher cautions building duplexes in an area that is already saturated in that type of housing as well.  

Third, consult with town planners in your area so that they can advise you if a property is suitable for development, It’s important to know exactly what your local council will allow on your site

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Property images  provided by Urban Angles

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