Ever thought you could invest in a property, split it in two and charge two sets of rent? A duplex could allow you to do just that. But it mightn’t be as simple as it sounds. When it comes to duplex properties, you’re buying two properties (duo) on one piece of land (uno) for generally much cheaper than it would be buying two properties on separate land. This duplicity can reduce costs and potentially increase tax benefits and profits (see below).
Like anything, though, duplex homes are not without their risks, so read on to see if a duplex might be suitable for you.
A duplex is a residence of two homes. It’s a single structure with a shared central wall but usually separate driveways, gardens and other features you’d expect from a home.
Sometimes the two homes exist on one land title and can be owned and sold together. Sometimes separate titles exist, which means they can be individually owned and sold.
Either way, the duplex makes for an exciting property investment opportunity – but is often overlooked by Australian investors. At MJS Construction Group, we offer a wide range of duplex build.
What Is A Duplex?
A duplex is a multifamily home with two units, either stacked or separated by a concrete wall. Each unit has an entrance. Occupants cannot access the other side unless they exit their current unit and walk over to the other side’s front door.
- Two-unit multi-level home or separated by a concrete wall
- Two separate entrances
- Tenants are separated
Duplexes aren’t extremely popular since people generally want their own space. However, they are excellent choices for a place to live while working on their credit or working toward buying their own house. They are more prevalent in dense areas with the lower-middle working class.
Why Buy A Duplex?
Duplexes are great for beginner real estate investors. Buying a duplex can be more profitable and less risky than buying a single-family home.
With a duplex, you’re receiving rental income from two tenants within one property. The cost of significant repairs, such as a new roof or siding, is paid for from two tenants’ payment instead of just one.
Having an extra rental unit on the property also protects you from vacancies. With a single-family rental, if your tenant leaves, you’re left covering the entire property’s cost without receiving rent. With a duplex, you’re still collecting rent from one tenant even if one of the units is temporarily vacant.
Buying a duplex also gives you the option to stay in one unit while renting out the other. Doing this naturally attracts more respectful tenants. Planning for a new look for your house? Look no further! MJS Construction Group is here to help in your dual occupancy builder Melbourne
How Much Does It Cost To Build A Duplex?
When it comes to duplex development, several factors need to be looked into, as these can impact your project’s total cost. These include the following:
In real estate, location affects property costs in many ways. If you already have existing land to accommodate your duplex, that’s well and good. However, if you have yet to purchase the duplex’s land to be constructed on, you need to be ready to shell out a substantial sum. Remember, land costs in popular or in-demand sections of the city tend to be high.
Surveys And Reports
Planning for a residential building (or any building for that matter) entails using the necessary reports and surveys to help you decide on preliminary duplex designs and provide a basis for a specific list of expenses and building contracts.
Aside from land surveys, there are specific reports you need to submit along with the development application. These include the Australian Building Sustainability Association (ABSA) assessment report, landscape plans, environmental effects, site analysis report, waste management report, BASIX report, shadow diagrams, stormwater drainage design and Colour Schedule.
You also need to work on the costs that can emanate from the physical attributes of the site. The site and survey results will reveal what costs may be incurred in the project’s sitting on the lot.
Additional costs may include rock removal, retaining walls (brick or timber), site cut or fill slab upgrade, and existing fill compaction. However, these factors are dependent on the condition of the soil and the fall of the land. Other costs you need to prepare for include the size and orientation of the lot, the block width, and all other requirements and documentation designed to satisfy the local council zoning and acquire the necessary permits.
To avoid wasting time, money and energy along the way, communicate with your local council right away. Familiarise yourself with the local building rules and regulations and required building-related documentation. Doing so will also prevent costly mistakes down the line.
Duplex property investing may seem easy enough to plan or discuss; however, project execution is an altogether different deal. A duplex is not something you can DIY, even just partially. If you want a quality project outcome (as you surely will), you’ll need to utilise different professionals’ expertise and services from the very beginning through to completion.
An architect and a contractor (who will also hire subcontractors and other workers) usually take up the bulk of professional work and fees.
Materials And Labour
The materials selected and used for your project will add to the total cost of building your duplex. How much material is needed depends on the project’s size, and your preferences or requirements will determine the cost. On top of these, subcontractors, skilled workers, and other manpower will significantly impact the cost of construction.
Pros Of Buying A Duplex
There are many benefits to buying a duplex rental property. A duplex will provide you with more than just rental income—it will allow you to learn as a beginner real estate investor while building equity in your investment.
Another benefit to buying a duplex is that they may serve as excellent Airbnb rental properties if they are eligible. If you live in a market with a demand for short-term rentals, you may be able to supplement your rental income between tenants.
Duplexes also have significant real estate value. Since a duplex will always provide cash flow for an investor, there will always be a demand for them.
- Introduces beginner real estate investors into real estate
- Builds equity
- Generates rental income
- Has good resale value
- Airbnb Opportunity
Cons Of Buying A Duplex
Some properties are built to be duplex, but many others are converted from single-family homes. A converted property like this may have some issues that you wouldn’t find in other types of rental properties.
The investor that converted the home may not have separately metered the electricity for both units. This is fine if you intend to include the rent’s electricity, but it leaves you committed to that model.
Duplexes that were constructed as two-family property were usually built with soundproofing in mind, but those used to be single-family home are notorious for noise complaints between tenants. In some properties, tenants may be able to hear what their neighbour is saying if they’re standing in a particular place. This can lead to increased tenant turnover and vacancies.
Also, while a duplex will generally provide better cash flow than a single-family rental, it’s still minimal compared to a larger multifamily property. The more units you have under one roof, the less your expenses are per unit. Having more than just two units will also keep you better protected from vacancies.
Finding the right duplex build is an important decision. Check out our range of the best home design constructions at MJS Construction Group.
Reasons Why You Should Buy a Duplex for Sale
Keep Watch On Your Property 24/7
It’s much easier to keep an eye on your property and tenant when your unit is connected to theirs. This is a great way to get started after you ideally find a cheap duplex for sale.
You can make sure that the tenants are treating your property with respect before the tenants leave, and you are left with damages to fix and pay for.
You Might End Up With A Better Tenant.
You will probably rule out most bad tenants that pay late and party into the night because they know they will be living next to their landlord. You will also be less likely to encounter a holdover tenant. A holdover tenancy is when a tenant continues to live in a property after his or her lease has expired without the landlord’s explicit permission.
Mortgage companies tend to give better interest rates to people buying a property they will also live in. They also consider a duplex as one property that can help you get a better rate as well. Many lenders will even allow you to include part of the potential rent into your income when qualifying for a mortgage. It also means that you are unlikely to have to pay the whole mortgage yourself. The rent you are collecting from your tenant should be enough to cover some of the mortgages.
Duplexes for sale are generally located in affordable areas primed for growth. This makes them an excellent investment for a first-time real estate investor.
Cost-wise, you will also benefit from having two units in one transaction. Your building and landscaping costs will be lower per unit compared to two single-family rental units. Property taxes will be lower per unit than they would be compared to two single-family homes of equal square footage.
Rent To A Family Member
You can rent the additional unit to a family member who needs more supervision instead of moving into a nursing home.
This sort of living situation works well for many families. You have your beloved family members close by, they maintain their independence, and everyone has some privacy.
Maintenance, repairs, and your rental schedule will all be in your complete control with a duplex. With a duplex, you control the vendor list, and you control the rental demand in ways you disagree with a townhouse rental property.
For example, other properties may have a no-pets rule. That makes your available tenant list shorter and possibly also reduces your rental income.
High Cash Flow
Renting out both units will produce monthly cash flow. And if you have taken the time to do your homework and snagged a great deal, it’s likely the combined rent from both tenants will cover the entire mortgage and then some. This makes owning a duplex potentially very lucrative.
Did you know that investing in a duplex as an investment property qualifies you for several additional tax deductions? Whereas single-family homes do not offer the same tax breaks, duplex owners can deduct most maintenance expenses, yard work and repairs. But remember, renting to a family member can disqualify you from some of these deductions.
Things to think about in duplex property investment:
- Duplexes are high growth and high yield investment, but with that comes higher risks than just buying an existing house or individual house and land package.
- A duplex is a positively geared investment with the potential to create equity in a calculated way.
- Buying purely on price tag can be a pitfall – you get what you pay for.
- You must have the capacity to cover a 20 per cent deposit, i.e. $100-$150,000 in equity. It can be achieved with a lower deposit, but that would create a higher risk (discuss this with your advisor).
- You must be able to service a large loan.
- A duplex is excellent for someone who is time-poor and wants to invest strategically.
- A duplex creates the ability to fast-track your wealth, so it’s an excellent option for retirees.
- You have the option to rent and achieve an ongoing high-interest return.
- Only certain councils will allow duplexes. NSW and Queensland are more favourable towards duplexes because of population growth.
- Seeking help from professionals means you don’t have to do it all by yourself. You can save time and avoid mistakes.
To my mind, a duplex is an intelligent way to invest. It has the ability to generate equity quickly and provide a higher rental yield per square metre.
A duplex property maximises the land’s potential and does not require a subdivision for two properties to be built. The most significant advantage of a duplex is creating equity quickly with a high rate of return on investment.
Of course, investing in property is not one-size-fits-all. The list above will help you understand what to consider when investing in a duplex so you can begin to decide if it’s the best option for you.