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Building a duplex, or two separate homes on a single title, is one of the best ways to create equity quickly while avoiding unnecessary costs and fees. But how can you do it without breaking the bank?
Duplexes are considered as high-growth, high-yield investments that require higher financial commitment, so before proceeding to the building process, it is important to conduct a feasibility study to determine your ideal budget.
Consider these common costs associated with building a duplex:
One of the first steps to pre-planning a duplex build is collating the necessary reports and surveys that will determine the condition of your block.
These will help you craft a more a more specific list of costs and develop preliminary duplex designs and building contracts.
Without these surveys and reports, it may be harder for builders to determine accurate site costs except through visual inspections and previous builds, which may not be exact.
Metricon Homes, for example, requires initial deposit funds for a soil test, feature or re-establishment and neighbourhood character survey, property service information and an updated copy of the title.
You may also have to pay for a re-peg survey and site inspection report, which helps you identify any restraint to the building.
Certain reports are also required as part of the development application, according to Champion Homes, including ABSA assessment report, site analysis report, statement of environmental effects, shadow diagrams, landscape plans, stormwater drainage design, waste management report, Colour Schedule and BASIX report.
The results stated in the surveys and reports will then help determine the costs associated with the external physical factors relating to the siting of the home on the block of land.
Depending on the fall of land and soil condition, these costs may include slab upgrade, site cut or fill, retaining walls (brick or timber), rock removal and compaction of existing fill.
The costs will also be influenced by the size and orientation of your lot, the way your land falls and the width of your block, as well as the conditions of the planning permit and local council zoning.
In order to avoid unnecessary additional costs or prolonged planning, be aware of development restrictions and requirements in your area by getting in touch with your local council.
Other house features that you may have to spend on are silt and pollution barriers, termite protection, and parking requirements.
Also consider your desired size of the duplex, the number of bedrooms, kitchens and bathrooms, as well as the quality of inclusions (a $3,000 per square meter cost may jump up to $6,000 to $7,000 if you opt for high-quality materials).
Kitchens and bathrooms are usually the most expensive parts of any build, depending on their functions and aesthetics, as well as the quality of inclusions.
You may also want to factor in optional extras such as landscaping, fencing, swimming pools and local council costs.
While building a duplex is basically establishing an additional home on a greenfield site, some investors may opt to demolish a part of their existing property to make way for the new development. In this case, consider demolition cost as part of your budget, which will involve taking out all infrastructure, underground piping, rocks and other hurdles.
Aside from external requirements, some local councils also require a retention system to restrict the flow of stormwater and regulate its release into the easements.
Other connections and services that may be necessary to the build are underground power pit, temporary power pole, additional water tapping requirements (wet and dry tapping), additional sewer requirements, upgrade of existing tie and relevant permits.
Finally, before proceeding to the building process, you have to comply to the Occupational Health and Safety (OH&S) requirements as stated by law, which ensures the safety and welfare of those in your workplace.
These may require costs for additional site cleans, temporary fencing, the carriage of material (including for the dogman), associate electrical authority requirements due to power lines, double handling, crushed rock to driveway for heavy vehicle access, additional scaffolding and tree protection requirements.
At the end of the day, the actual cost of building a duplex to create equity will depend on the size and quality of your build, site considerations, your desired time frame and the complexity of the project.
Masterton Homes estimates that the total cost of building two-storey duplex from the ground up would not be less than $650,000.
Essentially, you have to be able to cover at least 20 per cent of the deposit and service a large loan to successfully develop such property, according to Silvertail Property Group’s Nidal Rasheed.
As high the costs of building a duplex could be, the property professional believes that, if done right, the returns could be more fruitful compared to other types of properties.
Mr Rasheed 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.
Duplexes also maximise the potential of the land without having to subdivide and consequently reduce the cost of stamp duty, holding fees, insurance and council rates, cancel out strata fees and increase tax depreciation.
In order to make the best investment decisions, Mr Rasheed recommended speaking with a trusted advisor to evaluate your personal financial circumstance, establish your end goal and assist you with researching and developing a concrete plan of action.
This information has been sourced from the Department of Industry, Innovation and Science, Metricon Homes and Champion Homes.
Stamp duty is a tax imposed on the purchase of a property based on its price, location, and loan purpose.