What Is The True Cost And Yield Of A Dual Income Property?
We are constantly finding that people are wanting to know what dual income property costs. Now before we can get close to answering this question, we will need to establish what a dual income property is.
Dual income property investment is most definitely worth your consideration, however, there are, as with all property investment, some things that you need to be aware of.
What Is Dual Income Property?
So, what is a dual income property? A dual income property generally will be referring to a property that has the potential for two incomes, instead of one. A dual income property should have the ability to legally rent to different parties, as opposed to a Granny Flat which should be occupied by a related family member.
The most common types of dual incomes are the dual occupancy auxiliary and the dual occupancy Duplex.
Now, in Australia, there are differences across different council areas as to the types of properties that are allowed. This is particularly relevant in the dual-income space. Each Council has its own set of town planning rules regarding these types of properties and even has its own set of terminology that it uses to describe dual income property.
For ease of answering this question, we will use the terminology that we use to simplify the different types of dual income properties.
A dual occupancy auxiliary refers to a property that has two lettable spaces is on a single title, and the Auxiliary Unit is subject to size and siting requirements. You can see by this definition that whilst an Auxiliary Unit can be occupied by another party, it cannot be sold of individually as it is on a single title.
If you would like to know a little bit more about Dual Occupancy Auxiliary properties, watch this video:
A Dual Occupancy Duplex is a residential dwelling which has two premises for two households on a single lot, or two dwellings on separate lots that share a common property. These will most often be able to be strata-titled and are generally not subject to as strict size and siting requirements. You can see from this definition that a Duplex can have two titles allowing the two premises to be owned by different parties or sold off individually if desired. There is generally not the restriction on a number of bedrooms or size of living that Auxiliary units are often subject to.
If you would like to know more about Duplexes, watch this video:
The dual income property cost associated with the different types of dual income properties vary. As a rule, a dual occupancy duplex will have more fees associated with it than a dual income auxiliary. It is often a harder and more expensive exercise to find a block of land that can have a Duplex built on it, than an auxiliary. There are often higher Council fees associated with strata titling and headworks/contributions for a Duplex.
This will all vary across different Council areas. It is a very difficult exercise to give any guidance on pricing to build these types of properties, or dual income property cost, as each build is different depending on the property types, Council area, land nuances, sizes, fixtures, and fittings etc.
At any one time we have a list of different dual income properties available that we can send you which will give you a rough idea of the cost of each type. So, feel free to send through an enquiry and a team member will give you some guidance
The cost of the property will be a factor in the dual-income property yield, and as a general when looking at double income properties an auxiliary property will get a better yield than a Duplex.
A factor to consider when looking at dual income property investment is the potential for uplift or Capital Growth after completion. With duplexes there is in many instances the potential for the final built product to be worth more than the cost of the project, thus, creating instant equity or uplift.
How Do You Find High Yield Properties?
How do you find high yielding properties? The easiest answer to this question is to speak with a specialist property investment company that specializes in these types of high yielding multiple income properties, such as New Property Australia.
When we are putting together properties for our clients, we generally like to start with an area in mind. We then seek to find out the best high yielding property types that can be built in that area. For us, this involves using our town planners and designers to research the areas and the types of properties that can be built.
We speak with experienced specialist rental agents to establish what the different types of properties will rent for.
We will then narrow down appropriate blocks of land in the most desirable areas, within an area, based on the property requirements. For example, a Council area may have a minimum lot size of 450m2 and a minimum frontage of 15m. We would use this to base our block search.
When we have found a potential block of land in a desirable location, we will have our town planner asses the block to see what we can build on it, and our designer come up with a design based on the town planning advice. Our rental agents will assess the potential rent and provide a rental appraisal. We can then put this out to tender to get the best-fixed price build price from one of the builders on our approved panel of builders.
Once we have an idea of the price to build the property on the specific block of land, with the rental appraisal, we will be able to assess what the overall yield will be for the dual-income property.
Each of these steps is a little more complex than the explanation above, but it gives you a basic idea of some of the processes that we use.
Are Dual Income Properties A Good Investment?
Are dual income properties a good investment? The answer to this is that they can be, and they should be. As with any property investment, there is fundamental research and due diligence that must go into it.
Property is not simply a ‘good investment’ because it is dual-income and has a potentially high yield. It must also have good potential Capital Growth, and meet other criteria based on your individual circumstances and investment goals.
We have had many successful examples of dual-income properties that have proven to be very good investments, providing our clients with both a high yield and good Capital Growth. But this is due to the extensive research and due diligence that we go into for each property acquisition.
We have seen examples where different property providers have put too many dual-income properties in certain areas, leading to potential oversupply issues, potential decreases in yields, and less Capital Growth prospects. We firmly believe that you should be looking to have these properties in infill areas, with well established and emerging infrastructure, where there is not a risk of oversupply of this dwelling type. If you are going to put dual income properties into large green fill sites, then it should be ensured that there are limited numbers of these types of properties.
If there is a high yield single property investment, it is important to establish how this high yield is created and what factors are leading to the yield.
There have been many examples of people who had high yield single property investments, but they were short-lived as they were driven by short term demand, and eventually corrected. This has been prominent in Australia in smaller mining towns where short-term demand has created high yields, but this has been short-lived.
The advantage of a dual income property is that it can create a good yield in a good area. This enables you to invest in an area with good Capital Growth prospects, such as an area within a Capital City, and still create a high yield.
What Are The Costs/Taxes Of Dual Income Properties?
What are the different costs associated with dual-income properties? This is a little bit difficult to answer directly, as this will vary across different Council areas.
However, there are some things that you will need to be aware of dual income properties.
Dual Occupancy/Auxiliary and Dual Occupancy Duplexes may have higher fees associated with them from the Council. This can be a headworks fee or Council Infrastructure contributions. There is also often a higher Council Rates fee.
If you are looking at a Dual Occupancy Duplex property and want to strata-title it, this will have an additional strata title fee. If you do strata title, then there will be ongoing fees associated with the body corporate.
You will also need to check with an insurance broker that your dual income property does not attract a higher Landlord’s Insurance cost.
Obviously, with each property investment, there are the ongoing taxation issues that you must consider. This is too complex to explain as part of the blog. ATO has a detailed explanation of how properties are treated tax-wise.
When you earn more money you pay more tax, and generally a dual income property has a higher yield, so even with the greater depreciation, you most likely will pay more tax. However, tax is a side effect of success, and whilst it can be minimized it can never be avoided.
If you are interested in finding out more about dual income property investment, please feel free to send through an enquiry and we can send you further information.
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