Should you invest in a Duplex property?

Most investment properties are either purchased as an apartment in an up-and-coming trendy suburb or as a potential family home for renters. However sometimes an investor is presented with the exciting prospect of buying a dual-income residence at below-market rates. These “duplex” type of housing have been a popular choice throughout Australian capital cities and regional centres for many decades.

However the surge for these once humble duplex designs has increased as a modern wave of duplex designs have hit the market and have subsequently paved the way for new investor opportunities.

For those not familiar with duplex types: a duplex property is effectively two conjoined properties occupying on block or plot of land and will share at least one common wall. Both dwellings in a duplex are constructed at the same time, however depending on the title structure, they may be strata or non-strata titled.

If a dwelling is strata titled, then each residence may be owned and sold separately. But if it is not strata titled then both dwellings within the duplex can only be sold together. At times an investor may be able to purchase both sides of a strata-titled duplex, which enables them to owner-occupy one half, whilst renting out the other half.

A duplex is similar to an apartment or unit wherein there are no shared entrances or rooms. Each residence has its own bathrooms, bedrooms, living areas, courtyards and sometimes their own garages. What were once seen as ugly property types in not-so-dependable suburbs; duplex properties have now transformed in design and occupancy.

This change largely stems from the evolution of tenant demands. Decades ago, tenants favoured only houses on large blocks of land that were located in suburbs far away from the CBD centre. For this reason, duplexes were harder to market, resulting in weak rental returns. However if we fast forward to 2014 and as the cost of land skyrockets and the desire for most professional type tenants to live closer to the city due to work commitments; the rental demand has shifted towards smaller living spaces, with a closer proximity to the CBD. This in turn has made duplexes once again an attractive residential choice.

So with the ever increasing hype for these dwelling types, we’ve decided to weigh up the pros and cons:

Pros

checkmarkThe number one pro would be the potential to collect two rental incomes on what is effectively one property.

 

checkmarkIf well-purchased, this rental return rate can make for a positive cash flow from the outset.

 

checkmarkDuplex properties tend to fare better in terms of re-sell value compared to a traditional house that has a granny flat added to the property.

 

checkmarkThe option to have a non-strata titled structure creates an opportunity for investor to not only reduce holding costs (thereby adding more rental return to the property) but it also enables greater control over the expenditure of both properties.

 

checkmarkA wave of design innovation is taking over this form of residence. Designs are growing in aesthetical appearance and are in fact being designed to look as one big house from the street as opposed to the traditional duplex wherein they simply looked like an uglier “bolt-on” house. This in turn adds curb side appeal to both dwellings and helps maintain street value, which for investors enables greater capital growth potential for both dwellings.

Cons

cancelWhilst you may be able to potentially collect two rental incomes, there is also the fact that you will have to essentially care for two properties. This can mean that there will be two kitchens instead of one, four bedrooms instead of two, two bathrooms instead of one and so forth.

 

cancelWhilst there is the prospect of being able to live in one half and rent the other half, there could  be capital gains tax consequences to doing this. The reason behind this is that there is effectively one title on the overall property. What you could choose to do is strata title each one and owner-occupy one dwelling (and never rent it out as an investment property). This way, there is the potential to qualify for capital gains tax concessions for that dwelling only.

 

cancelDuplexes traditionally are harder to sell on one title. This is due to only being able to market the property to either owner occupier investors or owner occupiers who require a second dwelling for extended family. SO, it shrinks the prospective buying pool, which can result in lower sale prices. (However it should be noted that with our aging population, the desire for a young family to occupy one half and the grandparents in the other is growing in appeal).

For more investment tips on duplexes or any properties in general, please contact our mortgage broking team on 02 9299 7044 or visit www.clarencestreetmortgages.com.au

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