To duplex, or not to duplex
So . .you have heard the buzz about duplexes and how they can make a big contribution to your equity and your cashflow. But is this really true? And, if it is, where do you start?
First things first – your budget will be the foundation of your decision making. You should know how much you can borrow, or how much equity you can commit to the deal. Next – do some thinking about your goals. For example are you going to keep the duplex when it is built, sell one, live in one etc. Your plans will influence the best structure to use for the project.
Optimise your return
We advise our clients to always take an opportunity cost approach to investing. This means thinking about optimising your return for the sum invested. For example consider the benefits and costs of building a duplex, and measure this against other options you may have such as purchasing two properties or adding a granny flat; or building vs buying new. The variables will depend on your situation, but consider the following points as an example.
Like any property purchase, the location you choose should be led by your budget, goals, structure, and personal strategy. Then consider the market, demographics, infrastructure and all the other criteria you would use to select your suburb.
Type of site and design
Your council regulations are the first port of call when selecting your site, or considering what your current site can yield. Issues to consider include the zoning, size, orientation, frontage, slope, infrastructure, and stormwater. Then, when considering what you can build, you will need to look at rules for the floor-space ratio, building height, minimum lot size, setbacks, privacy, landscaping and a range of other area specific criteria.
Start with a quick ‘key points’ feasibility before getting into a full feasibility. Outlined below is an example which could be used for a flat, optimal site in a ‘purchase and build’ scenario. The build cost will vary depending upon the finishes required to meet the needs of your market.
|Buying costs (stamps + legals)||$40,000|
|Time to build||6-9 months + DA 3 months|
|Holding costs||$10,000 per month ($120,000)|
|Build costs inc fees||$550,000|
|End value||$900,000 each ($1,800,000)|
|Rental return||$650 /w|
In this scenario, the return on your investment would be around 19%. Your individual situation would influence the next steps. For example, if you have cash in the deal or already own the property, this could be a cashflow positive situation. In this example, the rental yield would be 4.47%.
If you are selling, you will need to factor in selling costs and GST. If retaining, take into account council rates, insurance, property management fees, maintenance and depreciation
At the moment in Australia there’s a wide range of ways to approach your property investing activities. Our cities are experiencing considerable change, so opportunities are constantly emerging. Solid due diligence prior to jumping in will guide you in the right direction. Of course, if you’re not sure what questions to ask feel free to give us a call.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.