When you picture a property developer, you probably envisage an individual of significant means. However, diving into the world of property investment is more attainable than you might think.
You have a large block of land and have been considering what to do with it.
Perhaps you have ample vacant space behind or beside your existing home, maybe you want to remain in your current location but don’t need a large home, or perhaps you want to unlock some of the equity in your land. You have been researching your options and how to do it most cost-effectively and profitably and have arrived at the conclusion that adding-on might be the best solution.
Many investors are looking for ways to increase their holdings in the smartest ways possible in a more sophisticated property market.
And one of those ways is dual occupancy developments, which are commonly called “dual occs”.
They say double the dwelling, double the income. But does that stack up as accurate? Today we’ll take you through one of the increasingly popular investment models that Australians are starting to love.
Dual Occupancy Properties are a unique type, where the block of land holds one title. However, two dwellings are constructed on the site. These can be detached or attached. Some examples of a dual occupancy could be;
- The property has five bedrooms and three bathrooms; however, it is divided securely, so one section of the property has three bedrooms, two bathrooms, the kitchen and living areas. And the other side of the property has two bedrooms, a kitchenette and one bathroom. The two ‘sections’ can live independently of one another but are under the same roofline.
- A granny flat is constructed, adjoining the property with a studio style accommodation layout and kitchenette and bathroom. Separate living areas, but attached through an extension or just off the original house.
- A property with a sleepout or carport area is accessed through the house but has been renovated to include a kitchenette, bathroom and bedroom/living area.
These types of living arrangements give investors freedom and flexibility while maximising potential returns from land values.
They can be used to either live in and rent the dual occupancy out, subsidising the mortgage. They can be used entirely as an investment with two separate tenants in the same property, generating two income streams (often highly profitable). They can be ideal for families with older children to give them some separation and independence. At MJS Construction Group, we have the best dual occupancy selection to make your house a dream come true.
The Economic Advantage
One of the most economical types of property development is dual occupancy, and there are several reasons why. Firstly, with dual occupancy, you have the option of building on the land you already own. Provided your local council regulations allow it (see point 2 below) and your block is big enough, you could subdivide your property and build another completely separate home on the block.
Then, depending on your lifestyle choice, you could: rent out the new home; upgrade by moving into the new place yourself and rent out your old house: or, you could sell one of the houses and put the profits away for the future.
Dual occupancy is also a great option if you love where you live, but your old home’s maintenance is untenable as you approach retirement. By knocking down your old home and choosing to build a dual occupancy property, you’ll be able to afford to live in a brand new home with the profit from the sale of or rent from the lease of the other home, which brings us to economic advantage number two.
Two For The Price Of One
Secondly, if you’ve bought a block of land, it makes economic sense to consider building a brand new dual occupancy such as a duplex. Compared to one large home, a duplex is an affordable way to get two homes for the price of one practically. Again, you’ve got several options in terms of opting to rent or sell – the choice is yours!
Whether you’re considering a knockdown rebuild or you’ve bought a vacant block, don’t be put off by its size when it comes to building a dual occupancy dwelling, including a duplex. A reputable builder such as Valley Homes has lots of different home and duplex designs to choose from, whether you’ve got a narrow block, a corner block, or one with a slope. For example, when it comes to duplexes, if you’ve got an extensive street frontage, a design like the Myall makes use of the space and maximises privacy, with the only shared wall being between the garages.
Or, if you’re after a double-storey home, the Baybreeze creates ample space for a family with living areas on the ground floor and bedrooms upstairs. These are just two of the duplex designs Valley Homes offers.
Plus, you can always choose a custom design for your dual occupancy so you can build homes that include all the features you desire.
The tax benefits of dual occupancy depend on whether you sell the second home or rent it out.
Sellers: By building a new home on your existing land, moving into it and selling your old home, you’ll avoid capital gains tax and GST. The ATO is an excellent resource for finding out more about this option.
Renting: Choosing to become a landlord and renting out the second home also brings tax incentives through negative gearing. In a nutshell, negative gearing is when the return on an asset that produces income, such as a new home, is less than the amount borrowed to invest. Again, if you’re new to all this, start with the ATO for the basics on the tax perks and implications of having a residential investment property.
Looking for dual occupancy? Look no further! MJS Construction Group has you covered.
What Factors To Consider For Dual Occupancy
Dual occupancy development could be a great opportunity under any ordinary circumstances.
Knockdown an existing property and rebuild two new dwellings could be an option if:
- You have a large block of land in a location where land prices are increasing.
- You don’t need a large house anymore but want to stay in your current location. This could be the situation when children are grown and left the family home.
- You want to release some of the equity in your land.
Building a new residence behind an existing residence could be an option if:
- Your block has vacant space, such as a backyard or area on the side.
- Your current house on your block is large enough for you.
- You want to release some of the equity you built up in your property.
Build two new residences on a greenfield residential block could be an option if:
- You have family members, such as aging parents, who want to live near, but not in the same dwelling.
- The value of the land is high enough to justify building two dwellings on it. Some greenfield estates have single dwelling covenants, which means you can’t build a dual occupancy dwelling on it.
Options once you’ve built a dual occupancy home.
If you decide to build a dual occupancy home, there are a range of options available:
- If you put the homes on separate titles, you can live in one of them and sell the other.
- You could live in one and rent out the other to create a new income stream. This could be especially beneficial in areas where the rental market is tight and rents are high.
- You could sell both houses.
As land values have increased in recent years more than the importance of houses, it means that many people have a large amount of equity built up in the land their house sits on. A dual occupancy home can be the right way to free up the equity you have built up over the years.
The Good and Bad of Dual Occupancy Properties
There are benefits to renters, such as nobody corporate fees and a more relaxed rent as the landlord only has one set of council rates to pay for both properties.
The income generated with a dual occupancy can be fantastic and helps investors working on a cash flow positive investment strategy. However, there is a downside that investors should be aware of.
Because dual occupancy properties are not very common at this stage, they can be difficult when it comes to bank valuations. Valuers value the property on it’s value as a structure and the land. Therefore, while the perceived value is quite high (two income streams, two different dwellings), valuers don’t consider this. For example, the five-bedroom, three-bathroom property we mentioned before would be valued just like that. Whereas in reality, it is designed as one three-bedroom, two-bathroom property and another two-bedroom, one-bathroom property – likely to be of higher value.
Builders often construct new dual occupancy properties as two separate dwellings with different power meters, water meters and hot water systems. This means that more time and resources are required to build them.
Because of this, the disparity between building costs and the valuation can mean a larger deposit or more equity needs to be provided in order to receive financing.
However, if an investor can afford that extra outlay, they’re likely to recoup it over the years of ownership in increased cash flow. We can expect that by the time they sell the property, the real value of dual occupancy properties will be recognised across the market, and a sale price that affects this will be achieved.
Why a Dual Occupancy Project?
There are several reasons why this sort of development is a wise choice for those looking to invest in property.
First, if you already own many lands suitable for subdivision, you’re steps ahead of the pack already. For example, you may own larger family home on a large piece of land. It might be a bit run-down and in need of some love. Or, you might own an investment property already – but the returns from rental yield are smaller, and you’re relying on the property increasing in value. This is called capital gains.
Capital gains is a long-term game, and with fluctuations in the property market, it doesn’t always pay off. A dual occupancy, on the other hand, can generate some serious wealth.
Let’s say you do a standard dual occupancy where you build a pair of duplex properties. This means that they share a wall and are usually side-by-side or one behind the other.
Once the properties are complete, you have a range of options. You can live in one dwelling and rent the other out. Some folks rent them both out. Or you could sell them both. Whichever investment option you choose, you are looking at a tidy return.
Some people even partner up with friends or family to muscle into a suburb they could otherwise not afford. They buy a dilapidated house in their target suburb, then knock it down and build a dual occupancy on the lot so they can both live there. At MJS Construction Group, we offer a wide range of duplex build.
How Do You Choose The Best Dual Occupancy Sites?
As long as the local zoning permits dual occupancy developments, it’s always best to consider sites close to infrastructure and amenities and the types of buyers who want to live in these types of dwellings.
Of course, the site will also have to be large enough for a dual occ development to be approved, which varies depending on its location
This is where you must complete a comprehensive feasibility analysis before signing a contract of sale.
You don’t want to end up with a site that’s no good to build a dual occ on!
A corner block is perhaps one of the simplest ways to make money from property, especially if the block is zoned for development.
That’s because corner blocks allow two-street access and therefore have more development options, which can significantly add to its appeal and value.
For example, on a corner block site, you might have an old house that you intend to demolish but which you continue to rent out while you obtain development approval to construct a dual occupancy dwelling on the site.
That way, your holding costs can be drastically reduced while all the paperwork and planning is being finalised.
Well-designed and well-located dual occupancy properties have the potential to provide strong cash flow through two rents from one property.
And holding the properties over the long-term can result in solid capital growth from two properties, instead of just one, on a single site.
Of course, you must get expert advice and guidance before proceeding to ensure your investments ideas can become a profitable reality with any property development.
If you’re ready to create a dual occupancy development, get in touch today!