Building a duplex disproves the mathematical equation 1/2 + 1/2 = 1, because the two units have a combined rental return and equity greater than an equivalent single dwelling on the same property!
Lloyd Edge, director and founder of buyers agents Aus Property Professionals has seen a real increase in duplex clients within his company over the past 12 – 18 months.
“People are looking to more creative forms of property investment, ones where you are not waiting for capital growth the traditional way”. Through building a duplex you can ‘create your own capital growth’ Mr Edge explains. “Not only can you create substantial equity in a reasonably small amount of time but there is also the added benefit of the dual income. The yields can be as high as 6.5 to 7% plus there are major depreciation benefits. Two lots of depreciation”!
Amongst the many benefits of building a duplex are:
- Instant equity increase on completion – This involves strata titling as two units are worth more combined than an equivalent single house on the same property (one title).
- Manufacture your own capital growth regardless of market movements.
- Better rental return (often around 7 percent)
- Choice of strategies – Keep both units, sell both, or keep one and sell the other.
Mr Edge explains that when his company builds a duplex for their clients, they build it on one title. It is one block of land and you are building one house. But the beauty of it is you are actually building two units within that house and on completion they can be strata titled and become separate properties, on separate lots.
Aus Property Professionals always do feasibility studies on every potential duplex project. They always look for an equity gain of over $100,000. Mr Edge explains that if the total cost of your project is say $550,000, including the land, construction and all council costs and you build in an area where units are selling for $340,000, then at $680,000 total, that’s a $130,000 development profit, minus costs such as stamp duty, legal fees and holding costs during construction.
You also don’t need to go any where risky like a mining town. Aus Property Professionals builds duplexes for their clients in areas with all the major pillars of economic growth, including good infrastructure, rising population, jobs, hospital upgrades, good transport links, education, close to lifestyle amenities such as cafes and restaurants and low vacancy rates.
Mr Edge explains that not just any block is suitable for a duplex build. “People need to carefully check the zoning and council requirements are different from area to area. Some councils will only let you build on 50% of your block while others will let you build on 60%. It is also important to check what the setbacks from the road and from the boundary fences are. It is important to seek advice from an expert in the field. Mr Edge explains that the last thing you want to be doing is buying land and then finding out that you can’t build on it, or that the suburb or town only allows single residence dwellings”.
While ensuring your plans will suit council is crucial, Mr Edge advises potential duplex investors that there are also other important factors to consider.
It is very important to find fairly flat blocks. Sloping blocks will mean more earthworks, costing more and eating into your potential equity gain. Obtaining a contour map and sending to your surveyor or architect will assist in getting accurate pricing. Where available, Mr Edge also advises trying to secure corner blocks. “Having access from different streets can give your duplex more appeal to both tenants and purchasers”.
Aus Property Professionals also aims to build in areas which are predominantly owner occupied. These areas generally get more capital growth than suburbs that are solely investor driven. It is also important to buy with an exit strategy. One day you will need to sell and the demographic you should be targeting is the owner - occupier market as they are more emotional when it comes to purchasing property. You also want to do something unique. Ensure you build where there won’t be many duplexes in the area.
To find out more about duplexes and how they can supercharge your property portfolio, click on the link below and listen to the interview.