Pros and cons of investing in a duplex

Unlike subdivided land, a duplex maximises the potential of the land without additional holding fees, insurance costs, council rates and other associated costs. It may also increase tax depreciation and returns on investment.

However, like any other investment strategies, owning a duplex comes with both benefits and risks.

Advantages

Aside from letting investors maximise the potential of the land without having to subdivide, duplexes also help them build equity and get high returns on investment.

In essence, owning a duplex means owning two separate homes on a single block. Therefore, duplexes are widely considered high-growth and high-yield investments.

If you decide to have both properties rented, you can pick two income revenues and ultimately achieve positive cash flow and high-interest return over time. Duplexes often rent for a higher amount compared to apartments. On the other hand, if you plan to live on one of the properties and have the other rented out, you can use the extra money to pay off your mortgage faster.

Buying a duplex is also considered a good introduction to property investment since it usually entails a cheaper purchase price and you can easily monitor your property from next door.

Building a duplex, on the other hand, may require higher financial commitment but could help reduce build costs, lower stamp duty, holding fees, insurance costs, and council rates, cancel out strata fees, and increase tax depreciation.

Silvertail Property Group's Nidal Rasheed explained: “For example: The land, cost to build two homes, subdivision fees, and council fees could cost you around $600,000. Once the houses are built and subdivided they could be sold for $350,000 each, making you a profit of $100,000 — all within 12 to 18 months.”

“Alternatively, each property could be rented for $350 to $400 per week, achieving a high return of 6.1 per cent to 7 per cent,” he added.

Duplexes are also usually valued for a higher resale price compared to traditional homes with a granny flat or a detached suite since potential buyers are essentially getting the benefits of separate homes with their own kitchen, bathrooms, entrance/s and utilities.

Disadvantages

As good an investment as duplexes sound, it may be hard to find a good deal in the market.

For one, not all local councils allow the building of duplexes. Once you find one that does, you then have to keep in mind that not all duplexes are guaranteed to add value to your portfolio.

Investors are advised to be meticulous when choosing the location of their duplex. An abundance of duplexes in the area may not necessarily be a good sign because it could lower the value of your property.

Instead, pick cities with fewer duplexes among freestanding homes and with consistent population growth to secure high demand for dwellings. Otherwise, you might suffer the consequences of extended vacancy.

Maintenance costs and other associated expenses can also fare higher since, essentially, you own two separate homes.

Even if you share the expenses with your tenant, you’re splitting the costs only into two, which does not make a lot of a difference compared to splitting the costs to a dozen if you own a unit in a strata-titled complex of 12 units.

Moreover, if you decide to live in one of the properties and rent out the other, living right next to your tenant could present certain issues, including a lack of privacy and possible late-night calls due to a property emergency. It may help to set some ground rules like “quiet hours” to prevent conflicts.

There are also tax and financial implications that apply specifically to duplexes and other dual-income investments.

Considering the complexity of investing in duplexes, you may need to hire professionals to make sure that you adhere to leasing laws and regulations pertaining to multi-housing investments and ultimately avoid any potential pitfall.

Expert advice

Before ultimately jumping in on purchasing or building a duplex, Mr Rasheed strongly encouraged a thorough assessment of your financial situation to avoid overcapitalising and ultimately derailing your wealth-creation journey.

He also advised speaking with trusted professionals, where appropriate, to understand the possible implications of the available options and determine the best strategy to implement based on your goals, capabilities and limitations as an investor.

According to him: “Investing in property is not ‘one size fits all’.”

“You need to understand the things to consider when investing in a duplex so you can decide if it’s the best way for you to create wealth. Research and develop your own plan of action,” he concluded.

This information has been sourced from Australian Credit and Finance, Canstar, realestate.com.au and the Smart Property Investment website.