Is Owning A Duplex A Good Investment?

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Duplexes are among the most common dual-income investments that help investors improve their equity over a short period and ultimately fast-track their way to financial freedom. Could this be the right asset for you?

Capital growth, rental returns, and cost savings are the rewards that drive increasing numbers of Australians to invest in duplex projects. This is not surprising as dual-income property can be an excellent instrument for creating wealth. Depending on your property investment strategy, investing in a duplex can lead to sizeable returns.

Buying a duplex as your first home is an option many people don’t even consider. But if you buy smart, a duplex can either be a more affordable way to get the location you want or an opportunity to become an investor while you become an owner-occupier.

What Is A Duplex?

A duplex is a single building on one block of land that has been constructed as two homes. The two homes tend to be mirror images in terms of layout, especially if they have a side by side configuration. In a traditional duplex, the houses share a central wall.

A duplex is somewhere between a detached house and an apartment. Each home has its bathroom, kitchen, entrance, and driveway, but it’s not a freestanding home. Unlike an apartment complex, you will only share a wall with one neighbour.

The two sides of a duplex usually have a similar address. For example, one may be numbered 23a, while the other is 23b. At MJS Construction Group, we have the best dual occupancy selection to make your house a dream come true.

Financial Benefits Of Buying A Duplex

Often, duplex financing can help buyers secure a home in a strong market. If your ideal neighbourhood or suburb seems out of reach, a duplex can help you become a homeowner in the location you desire.

If you purchase the title to only one half of the duplex, you may be able to get the property at a lower price than a detached home in the same neighbourhood. If you purchase the entire property, you’ll have rental income from the other side to help your home loan finances.

Duplexes can be fantastic for families on a budget and retirees looking to downsize. You’ll get an excellent property for about half the price of a standalone house. This means you can either save some severe cash or move up into a better area than you thought you could afford.

Another advantage is that duplexes are freestanding properties, so you’ll also be able to own the surrounding land. This can mean a higher capital gains return over the long term compared with a similar-sized apartment where you don’t own any land.

Potential Issues Of Duplex Ownership

In many cases, owning a duplex is a significant financial decision, but there are a few issues you’ll want to be aware of. Consider looking for neighbourhoods with fewer duplexes scattered among single-family dwellings. Areas, where most homes are duplexes tend to have lower property values and will not necessarily be a good return on your investment.

You may also come across duplexes where one unit is at the front of the street, and one is at the rear of the lot. If you live in the front half of a duplex with this layout, your neighbours may walk past your windows, meaning you may feel like you have less privacy. If you purchase only one side of a duplex, you’ll always have to be mindful of your neighbours.

On the other hand, if you decide to buy both halves, this puts you in being a landlord. You’ll be able to claim the rental income to help pay off your home loan, but you may need to hire a property management company or do all the work yourself to make sure you adhere to leasing laws and regulations governing landlords and tenants.

Pitfalls To Avoid

Not knowing your investment objectives.

If you want to buy or build a duplex, you must have a reason for it, correct? Property investors invest not only for the sake of investing. Therefore, it’s important to have investment objectives or even just one primary goal for choosing to invest in dual-income property. You also need to have a timescale for your investment.

So, if you’re seriously thinking of investing any time soon, be sure to ask yourself the following questions:

  • Are you thinking of using your property investment portfolio as a funding source during retirement?
  • How soon do you expect to generate returns from your investment?
  • Is selling your property in your plans?

Remember that selling a duplex can be complicated if you have tenants, aside from preparing for expenses concerning getting two separate titles for the units.

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Not conducting due diligence.

Buying a property way below the going purchase price may make you feel like you hit the jackpot. However, don’t be misled by short-term gains that can turn out to be significant long-term losses.

This is precisely what happens to specific property that goes back on the market after just a few months of being purchased. This means that the property failed to perform as expected, so the investor is driven to resell to recoup even just part of their investment. Worse still, this scenario is all too common among investors who fail to conduct due diligence and sufficient market research.Looking for dual occupancy? Look no further! MJS Construction Group has you covered. 
You can avoid this by asking the following questions:

  • Why does it make sense to invest in a duplex and not some other property type?
  • How is the housing market doing in the place you are investing in?
  • What are the current rental rates in the area?
  • What’s the population growth and unemployment rate in the area?
  • Is there a shortage of duplexes in the community you have in mind?
  • Are duplexes allowed in the neighbourhood you are considering?

If you have trouble finding information, you can always seek the expertise of local real estate agents and the local council and knowledgeable, experienced duplex builders.

Not considering your finances.

Aside from mortgage considerations, you also need to check if you are financially prepared to handle tenant-related scenarios in the future. These include hiring a property manager, considering maintenance and repair expenses, and weathering those periods when no tenants live in one or both units.

If you don’t have a business to help ensure you have adequate cash flow, you should have the security of a stable job. You also need to ensure you have good credit standing or borrowing history that will make you an attractive mortgage candidate to lending institutions. You also need to have some cash saved up as your financial buffer for rainy days.

Property investment is an excellent arena worth exploring as it promises significant financial gains in the long-term; that is, if you invest in the right property – whether it’s a duplex, strata property or standalone unit.

To ensure you reap the rewards you expect, avoid the pitfalls mentioned above before finalising any property deal.

Why Buy a Duplex as Your First Home?

Buying a duplex as your first home can be an exciting proposition because it offers you a few different options. Here are some of the advantages of purchasing a duplex as a first home buyer.

Access a Coveted Location

Most first home buyers have a dream location: a suburb they’d love to live in if only they had the money. A duplex can be the key to accessing that location on a first homeowner budget because half of a house comes with half of the price tag.

However, if you are buying the full-duplex, this perk might not apply, as the purchase price will likely match that of freestanding homes in the area.

Save Money

Even if you’re not buying in your fantasy suburb, you can still cut your budget in half by purchasing a duplex. This could allow you to get into the housing market earlier or will enable you to take out a smaller home loan. Again, this only applies if you are buying one home.

Rental Options

When buying a strata-titled duplex, you have the option of living on one side and renting out the other. Alternatively, you could rent out both sides and effectively get two incomes for one block of land. This is what makes a duplex especially appealing: the opportunity to become an owner-occupier and an investor at the same time.

More Privacy Than Apartment Living

Apartments are an option for many first home buyers on a budget, but they do come with decreased privacy. You usually won’t have your yard, and you could have neighbours on all sides. In a duplex, you’re only sharing with one neighbour.

Land Value

With an apartment, you usually don’t own the surrounding land; with a duplex, you own the portion of the land that’s associated with your home. This gives your purchase increased value; depending on the location, it could even appreciate over time.

Less Maintenance

If you own one part of the duplex, you’re only responsible for the upkeep of half of a house. That means mowing half of a lawn, cleaning half of the floor space, and (hopefully) dealing with fewer repairs. On the flip side, if you own the entire building, it could mean more work.

Tax Breaks for Investors

If you’re renting half of the home, you’ll also be able to claim tax deductions on any related expenses, such as repairs or interest payments. Half of any shared costs—such as building insurance—can also be written off.

Comparing Investing in a Single-family Home with Duplexes

An investor should usually weigh out which investment property will yield the most significant profit to meet their goals financially. This means that this investment will not be the same for everyone. For some, a single-family home is a better option, and for others, a duplex is a way to go. But why?

It should be noted that when a single-family home is vacant, this will affect the return on investment for your monthly, much more than investing in a duplex and having that go vacant would. 

Some owners will choose to live on one side of the duplex and rent out the other side, and others will rent out both sides. Typically, the likelihood of both units being simultaneously vacant is not very likely. When you own a single-family home, the owner is held accountable and responsible for all of the mortgage if it is left vacant.

When it comes to duplexes, insurance is anywhere from 15 to 25 per cent higher than that of a typical home. 

However, in the beginning, duplexes can wind up costing more than regular house rentals. There seems to be a higher demand for single-family homes than duplexes. Because of this, selling your duplex can take a great deal of time, usually longer than a single-family home. Check out our range of dual occupancy builder for your dream house.

Do You Have the Time?

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You must consider how much time you have available. When first beginning, managing and maintaining a duplex can eat up a lot of your time, almost as much as a part-time job would. From researching the property, deciding if you want to live there while renting some of it out, weighing remodel options, and making plans, this can take hours. Once you get to the point of having a tenant, you must have enough time to make necessary repairs and provide maintenance. You can even think of it as an entrepreneurial opportunity with many lessons and tactics to learn along the way. 

Deciding whether or not a duplex is the best investment option for you is one that will be tailored strictly to you, your situation, your goals, your available time, and your mindset. 

Many benefits come with owning and renting out a duplex, including extra income, tax write-offs, the ability to qualify for FHA, and the opportunity to live in the investment property. However, negative aspects come along with it as well. These include the maintenance, potential for damages, the risk of who to rent to and those not taking care of your property, and the vacancy risk. It is essential to take some time to decide if this venture is for you. You may feel like a landlord at times, and you may feel like you do not have much time for yourself as you become buried in repairs and maintenance, but the rewards will hopefully outweigh the drawbacks. 

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