pros and Cons of building a duplex.

The Pros and Cons of Building a Duplex

Is building a duplex a solid investment or is it double the trouble? That seems to be the million-dollar question for those considering building a duplex. When considering a new build, the initial appeal comes from the fact that you will only have to go through the building process once for the building of two separate (but one) rental properties and although building a duplex generally costs more to build than a single free-standing house, it is usually cheaper than building two houses. It’s true that duplex projects have the potential for significant profits, but they have hidden costs and liabilities that need to be determined when deciding whether to invest in this type of property.

What is a Duplex?

A duplex is a single residential property with two dwellings under one roof and a dividing wall between the two living spaces. Each side of the wall is a completely separate home, with its own entrance, parking space, yard and amenities. Usually duplexes are on one title, meaning both halves must be sold together, however, there are times when a duplex can be subdivided into two separate titles and each home sold separately.

What Are the Benefits?

The value added to the property when a duplex development is complete is the biggest attraction for potential investors. Two rental incomes from a single asset entices investors. But the real gold in a duplex investment is mostly in the equity. Building a duplex creates equity and at the same time a higher rental return.

Example:

Sarah recently completed a duplex building project in Byron Bay. The cost in total, including the purchase price of the land, construction costs and all development fee and titling was equal to $600,000.

A year after the property is finished and both dwellings of the duplex are successfully rented out, the property now has a value of $800,000 while bringing in $700 (per dwelling) in rent each week.

In a year’s time Sarah has created outstanding equity and is bringing in a steady income, simply by building one structure with two housing units.

What Are the Drawbacks of Building a Duplex?

The very first drawback is finding the right piece of land to build your duplex. Duplexes generally require a certain size block, and must have appropriate zoning to subdivide the property into two separate lots. Land owners are very aware of the potential their land holds and because of this may require higher premiums to purchase the land. In some cases, the premium is so high that it might not even be worth it to build a duplex as you may not be able to bring in enough income to cover the costs.

Another drawback of a duplex development is that subdivision of a property is not straightforward or streamlined. It can cost thousands of dollars in consulting fees to town planners and is not necessarily a task you can do all by yourself. However, there are blocks with existing approval that can help minimise the hassle, but the cost of land on these blocks are surely going to reflect that convenience. The lower cost for land without these existing approvals might actually end up costing you the same (or even more) as purchasing and building on a block that already has all the needed approvals. When you take into account your holding costs, you could potentially save yourself thousands of dollars and time purchasing land on a block that already has approval. Design, approval, and construction can often take more than a year and holding costs can include loan repayments, council rates and land taxes.

Additional Benefits

When you build a duplex, you do not have to use both sides of the unit as rental properties. Many people choose to live on one side of the unit and use the other side to bring in rental income or even as a space to keep family members close. The cash flow generated by a tenant is in addition to the affordability advantage you have by inhabiting the other side of the duplex. The cash generated from the tenant can help you take care of various expenses.

Although there may be some downsides to building a duplex, the overall financial victories outweigh the pitfalls if done correctly. Using Hennessy Building Projects to build your duplex is a luxury you can’t afford to pass up. We take care of everything. Our experience in building duplexes from the ground up is incomparable and our design ideas are out of this world. When you choose our team to build your duplex you are sure to interest renters and buyers before we even complete the building process. Contact us today and we will set up a quick consultation to discuss your duplex building options.

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