Understand the fundamentals of Dual Occupancy Property Development in Australia. Here is a brief overview of what you need to know as an investor. There are always factors that need to factor in with any property investment. Dual Occupancy Auxiliary developments can be an excellent opportunity to widen your investment portfolio. When you are buying new, you need a great builder and an exceptional block of land. This type of product requires a specialist, experienced team.
Here are some points that you should consider before starting a Dual Occupancy Development:
- Borrowing Capacity
When investing in dual occupancy developments, as with any property investment, it’s essential to know how much you can afford to pay. Knowing this upfront means that you don’t waste time looking at properties that you can’t afford and narrow down the products and areas that suit your budget.
Please speak with your broker and make sure they have experience in lending for new properties. Prior knowledge in lending dual income properties is essential.
- The deposit amount or equity required.
It’s important to know what deposits or equity amounts are required to obtain the finance you need to carry out the transaction. Different investment products can have additional Loan to Value Ratios (LVR) requirements.
Investment loans generally require a higher deposit or equity amount than an owner-occupier loan would. Also, you can know what you can afford before beginning the process of looking for a suitable property.
Dual Occupancy developments are a relatively new product. There aren’t typically many comparable sales of established dual occupancy properties. Therefore, valuers have a lack of comparables for their reports, which may lead them to bring valuations in short.
- Ongoing Costs of a Dual Occupancy Development
An advantage of dual occupancy investments is that in many instances they produce a positive cash-flow. However, this isn’t true in every case so it’s important to know what the ongoing costs are and have a buffer ready to pay expenses as they arise. Expenses to be aware of are as follows: insurance, rates, borrowing and bank fees etc.
- Does this investment suit your overall investment strategy?
It’s important that any new investments suit and form part of your overall investment strategy. Luckily with the high yields available from dual occupancy developments these can be added to a portfolio and improve the overall cash-flow position of your portfolio.
- Investment timeframe.
With all property investments, it’s essential to know the timeframe of your investment. Property investment should always be a medium to long term investment, and if this isn’t the case, then it’s essential to have advice about a suitable exit strategy.
- Ownership structure
The ownership structure is fundamental. It can prove very expensive if the initial setup isn’t correct. Changes to titles down the track can incur stamp duty and other fees and expenses. It is most important when more than one person is going on the property title and in instances where there are a husband and wife. An accountant will advise suitable structures to minimise taxation, and conveyancers can advise of arrangements for asset protection and estate planning.
Other factors that can be affected by ownership structure are land tax and cash-flow. Utilising Trusts and structures can ensure you minimise land tax and also protect the asset. Seeking advice from a property structure expert is essential and needs to be done before you purchase.
As with any investment, location can be one of the most critical decisions regarding your dual occupancy investment. There are differences in planning rules across different council areas. It is essential to know this when looking at and comparing dual occupancy/auxiliary investments. You will also need to consider the rental prospects, capital growth and future sales prospects of any location. Within any area, numerous circumstances can make investment work or not work. Undertaking your due diligence on the suburb is a must.
- Dual Occupancy Development Builder
Selecting the right builder is very important and can be the difference between a great investment outcome and one that’s not so good. When selecting a dual occupancy development builder it is important to make sure that they have had experience with building these types of dwellings in the areas that you are looking for. Builders should consider the requirements even in small scale Double Occupancy Developments. It is also best to have a look at some of the previous work that they have completed to assess the inclusions and quality of workmanship. Thorough contractor due diligence is important before starting any development project.
- Property Manager
It is essential to choose the right property manager for your investment. A good property manager can mean getting a higher amount of rent. Better quality of tenants and peace of mind knowing that they are undertaking regular checks to ensure the tenants are looking after your property are also advantages. It is vital to choose a property manager with experience in the area where your property is and preferably has had experience with dual occupancy/auxiliary dwellings. If you would like us to refer you to an expert property manager, please send through an inquiry below.
- Capital Growth Prospects
Like any property investment, the capital growth prospect of the property is one of the most important factors to take into consideration with a dual occupancy investment. Whilst a dual occupancy development will generally produce a high yield, this is only half of the investment equation. Some important factors to look for in selecting a suburb with good future capital growth prospects are as follows: increasing demand for property in the area, good current and future employment opportunities, new and emerging infrastructure projects, good population growth and future population growth drivers, signs of gentrification taking place.