If you’re an investor interested in duplex development, this guide is for you. Duplexes are becoming one of Australia’s most popular forms of property investment. Whether you’re an investor or looking to purchase a duplex as a rental income property, our guide to maximising your profits is a must-read. Are duplex profitable? Let’s find out!
Building Duplexes for Profit
Building duplexes is a cost-effective, high-return investment for your money, thanks to various factors that make duplex investment a great option for property investors and those looking to get on the property acquisition ladder, while possibly living on one side while gaining rental income from the other.
Why Invest in Duplexes?
There are a few reasons why putting your money into a duplex makes sense.
Dual Income Opportunities
As an investor, building or buying a duplex allows you to rent out both sides and double your rental income opportunities. Alternatively, if you’re purchasing or building a duplex to live on one side of, you can rent out the other side and enjoy an income that could cover many of your daily and monthly costs.
Long-Term Affordability
While duplexes may cost more initially than a single-storey house, their long-term investment and return potential are much greater. An example is that your duplex may cost you $500,000 to build, but you’ll have TWO properties of equal value, doubling their resale value immediately. Additionally, you’re only paying for one land lot on which to build your duplex, and you can build upward, rather than out, meaning you’ll not need to buy as big a lot.
They Pay for Themselves
Whether you’re an investor renting out both sides or a family looking to rent out one side of your duplex, the investment will pay for itself. Whether you’re cost-saving by renting out one side as a family or making money from rental income as an investor.
Market Trends and Opportunities
It appears that market trends in the world of rental income are on the up. Despite a 5% reduction in listings, the national median rent is $550/week, with Sydney’s median rental as $1000/week. This high rental yield is an important factor in your choice to build a duplex in Sydney.
Financial Considerations
There are numerous financial considerations when building duplexes for profit.
Cost Estimation and Budgeting
Cost estimating in precise numbers can be difficult, but there are a few factors to consider when budgeting your duplex and approaching builders.
Location and Lot Size
Where will your duplex be built? While duplexes can be built on a smaller lot than single-family homes, the average lot size for a duplex is typically between 400 and 700 square metres. Additionally, your lot location may impact the price of the land lot. Those paying for lots nearer Sydney’s CBD will pay more than those looking for duplex developments further away.
Materials
The materials you choose (in consultation with your builder) will significantly impact the cost estimate you’ll receive from your builder. Despite the rising costs of construction materials in Australia, you can still build a two-bedroom duplex relatively inexpensively, with materials like brick and structural timber being among your cheapest options, while structural steel costs remain high.
Construction Costs
Surprisingly, building a duplex is cheaper than building a single-family, single-storey home. While you might think your costs are higher, it’s relatively simple to replicate two sets of things in the construction business. By building a duplex that is identical in its style and layout to the one below (or beside) it, you’ll be saving construction costs. It’s important to shop around for builders for your duplex development and pick one that costs the project fairly and has a good reputation for duplex development.
Calculating ROI and Profit Margins
Calculating your return on investment and profit margins from a duplex will require you to wait until you have some solid data to draw from, but it’s a good thing to get some idea of your ROI before investing.
A good return on a rental income property is considered between 5% and 10%. However, the average rental yield in Sydney was just 3.1% in March, rather than the ‘good’ return of between 5 and 10. However, this doesn’t mean that your yield won’t increase.
No Strata or Body Corporate Fees
There are no strata or body corporate fees when you buy a duplex. As you don’t own multiple apartments in the same building and duplexes are instead considered separate dwellings, you likely won’t have to incur strata or body corporate fees during the purchasing process.
Selecting the Right Location
Location is everything when it comes to duplex developments. To appeal to the widest variety of people, you need to choose your location wisely, depending on whom your rental target market is, based on what you expect to rent your duplex for.
Evaluating Neighbourhoods
A good neighbourhood for duplex development will depend on who you’re renting to, but in general, duplexes should be built in low-crime neighbourhoods with adequate proximity to amenities, or proximity to public transit to and from a major centre.
Additionally, duplex developments that seek to rent out both sides of the duplex should build in a location where families live to entice family members to purchase and rent out the other side of their duplex to other family members. Student populations are another great option for duplexes as it allows groups of friends to share a living space and is nearly guaranteed ROI year-on-year.
Proximity to Amenities and Services
It may be more expensive to build a duplex on lots closer to amenities and services, rather than cheaper lots further away. However, consider the existing infrastructure. Is there a bus route that goes beyond those closer amenities that your tenants will be able to access?
Building closer to amenities and services is almost always more attractive for potential renters. Very few people with the means to rent a duplex want to live far away from shopping centres, nightlife and public attractions.
Understanding Growth Potential
There’s a huge amount of growth potential that comes with duplex developments. Property valuations in Sydney (and other capitals) are predicted to grow by 6 to 7%, and with the year halfway done, we can assume that property values are already on their way up. Combine that growth potential with the lack of strata or body corporate payments, and your ROI is already looking healthy.
Designing and Building
When designing and building a duplex, there are numerous factors to consider, from choosing a lot and drawing up plans with an architect, to hiring the right builder to bring your duplex dream to life.
Duplexes can either be built side-by-side or with a top and bottom level. This flexibility compared to single-family homes that are one storey allows them to be built on smaller lots. However you build your duplex, ensure that it is adequately sound-proofed, as people living on top of or next to each other generally don’t like hearing everything happening next door or below/above them.
When designing your duplex, you can replicate the general layout of each room on each side of the duplex. This will save you money when bulk-ordering the same materials from your builder’s suppliers. You’d simply have to double the materials you’ll need to accommodate a singular design rather than having to design each side differently, requiring different materials, construction practices and more money out of your pocket.
Managing and Maintaining Duplexes
Once built, your duplex will need to be managed and maintained effectively. If you’re an investor who’s bought or built a duplex development, then you’ll pay someone to manage and maintain the property. However, if you’re a family that’s renting out the other side, the maintenance and management are your responsibility.
Finding Reliable Tenants
One of the challenges of property management is finding reliable tenants who’ll abide by the rules you set, pay their rent on time and generally not cause you any headaches. This can be especially true if you rent out a duplex, where bad behaviour (partying, smoking, etc) is amplified by the proximity to others in the duplex.
Be sure to interview possible tenants and carefully make your selections. You don’t want to have to deal with renters in conflict as a landlord! If you’re a family who’s bought a duplex to rent out the other side: don’t rent it to your family members. Sometimes bringing money changing hands can sour a familial relationship, particularly as this would be a formal rental agreement.
Property Management Tips
Some basic property management tips include:
- Ensure general property maintenance is done on a regular schedule. Things like lawn mowing, hedge pruning, garbage collection, and in-house cleaning (if you offer this to tenants), should all be done on a schedule communicated effectively to the tenants.
- Work with tenants to resolve any differences quickly. While we understand that you’re a busy landlord, unhappy tenants are your responsibility. If your tenants are having issues with the other group of tenants, work quickly to address it with compromise, reason and clarity.
- Schedule inspections of your property regularly with tenants to ensure that no damage has gone unreported. If damage has occurred that was not the fault of a tenant, ensure that repairs are done swiftly.
- Establish your own business hours. It can be difficult to step away from your property when there seems to be a never-ending list of things to do, but having a work-life balance is important.
- Communicate regularly with tenants in writing about their experience with the property, any concerns or questions are to be handled in writing first, then with an in-person meeting if necessary.
Routine Maintenance and Upgrades
Ensure that routine maintenance is conducted on each unit. Things like interior and exterior property work: lawn care, window cleaning, landscaping, rubbish collection, etc, should all be done on a schedule that is tightly kept. This is to avoid upsetting tenants and maintaining the beauty of your property.
Upgrades over time are important, too. Things like heat pumps and low-flow showerheads to water-conserving toilets may be a good option once you start seeing a positive return on your investment. It will make your tenants’ lives easier and save you money in the long run.
Final Thoughts
Building a duplex allows investors and property owners to receive two streams of income from a single property. They offer fantastic returns on investment and are becoming one of Australia’s most popular rental income property types.
Research where your duplex is most likely to succeed before you select a build location. Consult with many different builders before selecting and do your homework on potential tenants via in-person or virtual interviews: you want to protect your investment by renting to responsible, mature people.
If you’re considering a duplex build for your next investment property, contact Worthington Homes today to see how we can help you build your first duplex in Sydney or expand your existing duplex dynasty.
Frequently Asked Questions
What is the capital growth of a duplex?
Many factors can contribute to the capital growth of a duplex, so coming up with a number is difficult. Still, duplexes have long been a solid housing investment due to their rentability as two units, prime location, and relatively low building cost.
Which is a better investment: a single-storey home or a duplex?
Generally, a duplex is a much better investment than a single-storey home due to the income potential. With a duplex, you’ll have two rental incomes rather than one, plus a higher resale value due to the rental income potential.
What is the minimum cost of building a duplex to rent?
The cost to build a duplex varies significantly based on numerous factors, including materials used, location, construction costs and design specifications, you can expect to pay a minimum of $500,000 to $600,000 for a duplex build.
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