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Building a duplex—two separate homes on a single title—is a strategy many property investors use to avoid unnecessary costs and fees while creating equity over a short period of time.
According to Silvertail Property Group’s Nidal Rasheed, a duplex “has the ability to be retitled as strata titles after construction is complete”, thereby maximising the potential of the land without requiring the investor to subdivide, which could be a more costly strategy.
Building a duplex helps reduce build costs, lower stamp duty, holding fees, insurance costs, and council rates, cancel out strata fees, and increase tax depreciation.
Nidal explained: “For example: The land, cost to build two homes, subdivision fees, and council fees could cost you around $600,000. Once the houses are built and subdivided they could be sold for $350,000 each, making you a profit of $100,000—all within 12 to 18 months.”
“Alternatively, each property could be rented for $350 to $400 per week, achieving a high return of 6.1 per cent to 7 per cent,” he added.
As good as its benefits sound, building a duplex to create equity does not work for every property investor. Due to the increased earning potential, the risks associated with this type of investment is also at a higher rate.
A property investor, as always, should evaluate his current financial situation in order to determine the next move to make in his investment journey.
Here are some of the things to consider when building a duplex on your land:
1. A duplex is a positively geared investment. Therefore, it has the potential to “create equity in a calculated way”.
2. This could be a perfect strategy for a time-poor investor who is eager to invest strategically.
3. Since you can fast-track your wealth creation, this is also a great strategy for retirees.
4. “You have the option to rent out and achieve an ongoing high-interest return.”
5. Many professionals are willing to guide you through this strategy, helping you save time and avoid mistakes.
1. Being a high growth and high yield investment, a duplex requires a higher financial commitment compared to other types of investment such as existing houses and land packages.
2. You often get what you pay for, so buying cheap could mean buying a bad investment.
3. A 20 per cent deposit is necessary to build a duplex—a lower deposit would create a higher risk.
4. You should be able to service a large loan.
5. Not all local councils will allow the building of duplexes. You need to find cities with consistent population growth to ensure demand for dwellings. Before using any new or more sophisticated investment strategy, make sure to speak with a trusted advisor in order to understand all the possible implications.
Before using any new or more sophisticated investment strategy, make sure to speak with a trusted advisor in order to understand all the possible implications of your decision. You must decide based on your personal financial circumstance instead of just going along with what everyone else seems to be doing.
According to Nidal: “Research and develop a plan of action.”
“Investing in property is not ‘one size fits all’ ... By understanding the things to consider when investing in a duplex, you can decide if it’s the best way for you to create wealth,” he concluded.