The phrase “development potential” can be very tempting to an investor browsing property listings with an eye on the long-term.
It’s also a marketing term homeowners may be wondering if they can use when it comes time to sell their property, as properties with development potential tend to be valued more than surrounding blocks.
Subdividing a block and adding more dwellings can in some cases double its value, but you don’t necessarily need to fork out hundreds of thousands of dollars to reap the rewards.
Everyone loves a great deal, which is why home builders may be tempted by the idea of getting two homes for the price of one.
Although it costs more to build a duplex than a single freestanding house, it’s usually cheaper than building two houses, and because both dwellings are on the same block, the land costs less than two separate lots.
Duplex projects have the potential for significant profits, but considering the hidden costs, determining whether a duplex is a good investment depends on several factors and diligent number crunching.
Dual occupancy homes, characterised by two strata dwellings on a single block, are high-density living arrangements that can be an attractive option for owner-occupiers, investors and a broad rental demographic. The benefits of a dual occupancy are manifold. They typically allow investors an optimised return on investment (ROI) from two income streams without the additional costs of separate rates and body corp fees associated with owning independent land titles.
Sydney’s flourishing property prices and increasing rental demand has made dual occupancy development a popular avenue for landowners needing to accommodate additional family members or developers wishing to reap the benefits of the booming housing market.
What is Dual Occupancy?
NSW State Government Laws defines a dual occupancy as, “two dwellings on one title, either attached or detached”. Dual occupancy is different from having a secondary dwelling or granny flat situated at the back of a property. Attached dual occupancy means two dwellings on one lot of land that is attached, but does not include a secondary dwelling. Detached dual occupancy means two detached dwellings on one lot of land but does not include a secondary dwelling.
An example of dual occupancy is a duplex. At we Build Australia we have the right guys for the job if building a duplex is something you’re considering. We have a team of expert dual occupancy builders who will be able to guide you throughout the process from council approvals right through to the final product.
Why Should You Consider A Dual Occupancy?
If your property is located in an R2, R3, R4 or B1 zoned area, councils will allow you to build a dual occupancy on your land. If you currently have a knock-down rebuild and want to build two new dwellings, or want to build a new dwelling behind an existing one or two new dwellings on a vacant block of land, you won’t go wrong with a duplex. Dual occupancy home designs are becoming increasingly popular among homeowners who want to maximise their income, downsize their current home or increase the value of their property. There are many benefits to having a dual occupancy, such as:
- The increasing value of the property – with building a duplex, for example, there is potential to increase your property up to 40% and if a Dual Occupancy Subdivision can be achieved there is potential for properties to double in value.
- An additional source of income – supplementary to regular salaries, the rental income of a 4-bedroom duplex in some suburbs of Sydney can mean up to $1400 in rent per week.
- Minimise risk – risks will decrease with dual occupancy because if there are two properties, the risk of both being vacant is low.
- Reduce the cost of development – this can be achieved by selling one side of the dual occupancy.
- Affordability – duplexes are a great way to start with and save money. If you can’t afford to buy a luxury home right away, duplexes are great to set you up financially to upgrade in the future.
- Freedom – with a duplex, you have the choice to either, rent or sell both sides, or live in one and rent or sell the other side.
Benefits of a Dual Occupancy Home
Growing in Popularity
Specific generational shifts have increased the popularity of these buildings, as more Australians move into and remain in urbanised inner to middle-ring areas but still require close contact with inter-generational family members. More and more, Aussies are discovering the benefits of owning and living in a dual occ.
Commonly known in the US as duplexes, multi-family or multi-generational houses, they are gaining popularity in capital cities such as Melbourne and Sydney in the form of granny-flats, multi-unit, townhouse and dual-key developments as investors and developers continue to realise the cash-flow-positive benefits of having two dwellings set on one land title, with potentially far higher yields than blocks containing one strata building.
Types of Dual Occupancy
‘Dual Occs’ may be either attached in a duplex or constructed as separate dwellings. Each property has the potential for rental income, though their specific differences affect investors.
- Granny flats are typically the size of a small apartment and located to the rear of a largish yard. They require council approval before building, as well as being allowed to accept tenants into the property.
- A Duplex entails two properties which are adjoined or share common walls, such as a house divided into two separate properties, and can therefore be sold separately.
- A Dual-key is a property with a shared front entrance door and hallway and potentially additional living spaces such as the kitchen and living room. A section within the property is usually locked and rented out to a separate tenant.
- Dual occupancy properties share common land but do not have to be adjoining or share common walls like duplexes.
Dual occupancy home designs appeal especially to students and young professionals, and the senior population who may need the security of younger family members present. This makes dual occs attractive for investors depending on the locality of the property, potentially allowing both increases in yield and capital growth over property cycles. Investors can lease both sides out to maximise ROI. An owner-occupier could live in one side and rent out the other so that their tenants contribute to a mortgage.
Benefits of Investors
Dual occs make sense for investors who want to knock-down an old building and create two dwellings on the site rather than spend more remodelling the older dwelling. Plus, they only have to deal with one building and design team working on their project. There are tax benefits and stamp duty savings as well, as investors have typically only needed to pay upon the land itself.
Unlike traditional single-dwelling homes, dual occs require additional custom design and construction considerations, as well as council approval and zoning permissions. Homes in dual occs, duplex or multi-unit properties usually also require sufficient noise insulation, privacy and individual comfort capabilities such as extra ensuites, bathrooms, storage and living spaces.
For investors, the best sites to consider for a dual occ are those in quiet suburban streets in striking range of infrastructure and amenities and suburbs that are proven to be attractive to the type of buyers who want to live in dual occ dwellings such as towns with high walk scores, typically close to train stations, schools and tertiary education institutions.
Typical Returns Compared to Single Dwelling Investments
A usual scenario is that one site with one dwelling might attract a weekly rent of $750 per week, but each of the dual occ dwellings on the same potential site might earn $600 per week, which means $450 more in rent per week.
Also, if the land is of sufficient size, it’s likely to increase in value faster than a standard apartment in a large complex where land value is greatly divided. For investors, buying and selling is generally a more flexible exercise when it comes to dual occs, simply because dual occs provide an option to keep residency or title, while simultaneously selling or leasing out at least one of the dwellings.
Is council approval required?
All dual occupancies need to obtain development consent from the Local Council before proceeding. This means a development application must be lodged with Council for determination.
Is a dual occupancy permitted in your zone?
The Local Environmental Plan (LEP) for the Council area sets out land zoning tables which provide a framework for the way land can be used. Dual occupancy is permissible only if it is identified as a permissible use under the zone.
What planning controls to look out for?
Even if a dual occupancy is permitted in the zone, it still needs to comply with other planning controls in the LEP and Development Control Plan (DCP). It is these planning controls that ultimately determine if a dual occupancy will be approved.
The main planning controls to look out for include:
- Minimum Site Area; and
- Minimum Site Width.
Designing The Dual Occupancy
Like any other development, when designing a dual occupancy, it is essential to consider the controls prescribed in the relevant LEP and DCP. Normally the DCP will have a specific section for dual occupancy development. The LEP and DCP set out controls concerning the maximum floor space ratio, maximum building height, building setbacks, car parking, open space and minimum landscaped area. These controls should guide the design process in order to fast track the development approval process.
Subdividing Your Dual Occupancy
Depending on the LEP, a subdivision of a dual occupancy is usually permitted with consent by way of a Torrens title or a Strata subdivision. This means that for each dwelling within a dual occupancy will be created either as a strata title unit in a strata plan or as a Torrens title lot.
Subdivision of a dual occupancy can only be done with the lodgement of a Development Application. However, before lodging a subdivision application, it is essential to ensure that the development meets all necessary subdivision requirements prescribed by the LEP.
Here Are Some of the Issues You’ll Face
If you’re feeling overwhelmed or drowning in endless paperwork and compliance, you’re not alone. The planning system is complex and can be frustrating for homeowners and investors.
Putting together an application for a dual occupancy can be extremely hard and tiring, and dealing with the Council can be a nightmare, not to mention the whole process can be very expensive. Plus, we’re pretty sure you have better things to do. That’s where we fit in!
It’s what we do, all day, every day. With a team of 10+ highly knowledgeable and experienced town planners, property consultants, registered architect and draftsman we’re pretty good at what we do.
What Rules Do I Need to Comply With?
Having worked on hundreds of dual occupancy projects over the past 25 years, common compliance rules and questions to consider are:
You have fantastic ideas for dual occupancy. However, your difficult neighbour has put in an objection to your proposal because it will overlook their backyard. Did you know that you can be given the opportunity to address neighbour objections before Council makes a decision on the DA? But how do you go about addressing those objections on planning grounds?
Defining Your Development
Did you know your plan for dual occupancy is very similar to a secondary dwelling, but with differences? It may be that your site would be better suited for a secondary dwelling? How do you know the difference and what is Council likely to support?
Bushfire Prone Land
What do you do if your site is located within a bushfire prone area? Did you know that this may introduce other agencies into the assessment process, such as the Rural Fire Service? What would you need to do to satisfy the requirement of the Rural Fire Service?
You may want to build another dwelling on your property for a family member, or you may want to subdivide so that the two dwellings end up on different titles. Can your dual occupancy be subdivided and, if so, how? Depending on the size of your land, you could end up with getting an approval for two dual occupancies, which will give you 4 separate dwellings on the land that could be separately sold.
What are the hidden costs of building a duplex?
Duplexes generally require large, wide or dual-frontage blocks, and appropriate zoning to subdivide the property into two separate lots.
Suitable sites may command premium prices, as other buyers may have the same idea. Sometimes the premium is so high that you might not make as much money.
Subdivision of a property isn’t straightforward and can cost thousands in consulting fees to town planners. It’s not a DIY type of project.
The cost of this process surprised many buyers. That portion is between $40,000 and $50,000.
Blocks with existing approval can minimise the hassle, but generally cost more than a comparable site.
Because it was already approved, it saved me a lot of time owning the land and reduced my holding costs. “Having something ready to go saved me thousands of dollars.
Design, approval and construction often take more than a year, and holding costs can include loan repayments, council rates and land tax.
Those taking the knock-down-rebuild route need to factor in demolition, which costs up to $20,000. “Typically it’s easier if there’s nothing on the site.
For those planning on selling a duplex within five years of completion, the transaction may need to include GST, which can affect overall profits. Capital gains tax is also payable on properties that aren’t a principal place of residence.
How can you make sure a duplex investment pays off?
To determine how much equity will be generated, investors should look at recent sales to estimate the value of each dwelling upon completion, and compare this with the purchase price and costs.
Suburb fundamentals are important for duplex builders.
Location is paramount, so proximity to amenities, public transport, or parks – your typical growth drivers that apply to any property to maximise its chance to grow in value will apply to a duplex.
The area will also affect the type of duplex constructed. If you’ve got low land value, you don’t want to overcapitalise on the quality of the build, adding that duplexes in areas with high land values should be finished to a high standard to reflect market expectations.
If there are a lot of duplexes in one area, oversupply can put downward pressure on rental return. Try and develop them where they are the exception and not the norm.
Site selection was critical, adding that town planners can advise buyers which developments are allowed before purchase.
A dual occupancy has the potential for making money. But it can also be a loss for someone buying into a property thinking it’s suitable for development and it’s not.”
While there are some really good benefits to building a duplex, time is something to factor in. When going to Council for approval, it’s important to allow for a 3-6 month process before you get the green light to begin building. There are other alternatives such as CDC (private certifiers) which may require less time from the design process to the building process, but can also be quite costly. No matter which avenue you choose, we will manage this operation for you and ensure that you are equipped and well aware of all processes involved.