Sydney’s housing market is experiencing a modest upswing in the pricing of homes of between 7% and 9%. As such, you may be thinking about investing in a duplex, whether you’re an existing landlord in Sydney or are looking to get some extra rental income from your investment. So, what are the advantages of duplexes in Sydney? Are duplexes a good investment? Are they purely a dual-income cash cow? Or do they have long-term investment potential?

Understanding Duplex Investments

Whether you’re buying or building a duplex for investment, duplex investments are typically made by existing landlords searching for their next rental property. Or, families looking to recoup some expenses by building a duplex and earning rental income from the other half of the property. Duplex investments are generally considered to be wise financial investments, even for first-time home buyers. Let’s explore why that is below. 

An Overview of Real Estate Investments

Australian real estate investments for a single property are generally broken down into three categories for residential investors:

Trust/Managed Investment Scheme

These investments are managed by either a trustee or an investment manager. To purchase using this method, you must find a licensed trustee or investor with an Australian Financial Services License (AFSL).

A Company

As a landlord or real estate investor, chances are you’re registered as a business with an ABN number. Companies can more easily apply for investment loans through the bank as they have the necessary collateral to put up for their duplex investment.

Individuals

Individuals seeking investment loans will need good credit, a solid financial plan and a budget for the duplex acquisition.

Duplex vs. Single-Family Home

What are the benefits of investing in a duplex versus a single-family home? That all depends on what your plans are for the duplex investment and the location and size of your lot. Your lot size and location may be more suitable for a single-family home rather than a duplex. However, duplexes can be built on smaller lots than a traditional single-family home, opening up your development possibilities. 

Duplex vs. Multi-Family Properties

While a duplex is a multi-family property in its own right, as it may have two families sharing either side of the building, is it a more savvy investment than say, a small apartment building? Consider the following reasons to choose a duplex as your next investment.

• A smaller overall lot size than most small apartment buildings.
  

• Less overhead costs in general and at start-up as only two units will need to be plumbed and electrified, rather than electrical and plumbing work needing to be done for all apartment units.
  

• A nicer, familial atmosphere, rather than feeling cramped inside apartments with paper-thin walls.
  

• A better opportunity to get to know your tenants and build positive working relationships.

Financial Benefits of Investing in Duplexes

There are many financial benefits to choosing to invest in duplexes. From the dual-income potential of a fully rented unit to other financial benefits. We’ll go over some of these below.

Potential for Rental Income

The most obvious benefit of duplex properties is as a rental income. Whether you’re a real estate investor, landlord, or a single-family seeking to rent out the opposite side, you could be pulling in between $500 and $1000 per week from renting the duplex property!

Mortgage and Financing Advantages

Lenders and financiers are more likely to grant loans to those building duplexes, as they are highly lucrative rental units, with lots of potential renters, nearly guaranteeing the bank/financiers return on their investment. On average, ROI on a fully rented duplex can be between 5 and 10%!

Tax Benefits

Additional financial benefits to investing in a duplex include the taxation (or lack thereof) benefits. You do have to pay capital gains tax on your duplex investment, but you do have to pay strata or body corporate fees as individual tenants, however, the property owners may be required to pay these fees. 

Reduced Vacancy Rates

One primary reason for investing in a duplex is that it is generally a solid financial investment. Because duplexes can appeal to a wide variety of renters and their situations, like student groups can share both sides of a duplex or one side of your duplex could be used as a single-family home, while you rent out the other side to friends or family members. Well-placed duplexes also appeal to housing cooperatives and organisations that may rent out duplexes to low-income families in need. 

Challenges of Investing in Duplexes

Some challenges come with investing in a duplex that is worth considering before taking the financial plunge. 

Maintenance and Management Issues

As a landlord, it is your responsibility (or that of your property manager) to maintain the property. This entails things like lawn care, trash disposal, general maintenance and ensuring that the venture remains profitable.

Initial Investment and Renovation Costs

There’s also the challenge of the initial investment of purchasing a lot and building the duplex. The average cost to build a duplex in Australia is between $550,000 and $1.3M, depending on the size of your duplex. A consideration aside from the initial investment is that there will be period renovation costs to upgrade the infrastructure with things like heat pumps, smart technology in bathrooms like low-flow toilets and even solar panel systems to save you money in the longer term.

Dealing with Tenants

Dealing with tenants is a challenge of any landlord. While you may choose to delegate those responsibilities to a property management company or individual, tenant issues with each other or with the space, could still become your responsibility. Particularly in the event of irresolution and possible arbitration for late rental payments, unhealthy or unsafe living conditions and other factors that affect tenant-landlord relationships.

Do your best to keep your tenants happy. Happy tenants pay their rent on time and don’t cause unnecessary headaches for you as a landlord.    

Factors to Consider Before Investing in a Duplex

If you think that investing in a duplex is a market-savvy idea that’s sure to bring you profit and prosperity, you might be right, but consider the following factors.

Location and Market Conditions

The location where you build your duplex development is critical to its rental success. While there’s such a housing shortage that people are willing to rent anywhere, building a duplex that’s intended to be rented to single families in a place that’s buzzing with students who like to party might not be the best investment practice.

Similarly, consider carefully your potential tenant base. Building a duplex that’s close to amenities and/or on public transportation routes will make the rental more attractive to potential tenants.

Financial Stability and Budget

Do you have the financial clout and stability to secure a loan for your duplex development? Presuming you are not independently wealthy, what is your budget for this project? Have you costed it all out accurately? If you have any doubts, consult with a professional accountant that specialises in real estate investments.

Long-Term Investment Goals

Duplexes are fantastic long-term investment opportunities. But if you’re not planning on keeping the duplex for a long time, then maybe a different real estate option may be more suitable. As duplexes do have a great resale value, you’re able to sell both sides of the duplex as separate units, but their high price tag means they’re a relatively niche market.  

Property Management Options

Consider how your duplex development will be managed once built. If you’re not planning to do the work yourself (chances are, you aren’t), then you’ll need to hire a property management company or individual to manage the property for you. Carefully review each property management company in your area and choose the one with the best reviews from both landlords and tenants who live in buildings managed by these companies.

At the end of the day, if a property management company mistreats or mismanages your duplex investment, it’s your name that’ll be sullied. 

Final Thoughts

In general, duplex developments make for a fantastic investment opportunity for both landlords, real estate investors and single families looking to recoup some expenses. They’re relatively easy to obtain financing for, inexpensive to build due to the repetition involved in their design, and have a great resale value to the right person.

If you’d like to learn more about Provincial Homes duplex designs, contact us today! We can help you get started on your duplex investment journey!

Frequently Asked Questions

As one of Sydney’s premier duplex home builders, we receive a lot of questions about the viability of duplexes as an investment opportunity, here are some of our most common questions.

Are duplexes a good investment?

Certainly, buying a duplex in Sydney’s expanding real estate market could be a savvy financial decision. It has significant mortgage and finance benefits, and it gives you the potential for dual income through renting out both units. With the market experiencing an upswing, there’s no better time to invest for short-term gains and long-term growth.

What are the disadvantages of a duplex?

Though duplexes have many benefits, prospective investors should be aware of the drawbacks, such as having to deal with urgent, sometimes expensive maintenance issues and renovations in a timely manner. You also have to talk regularly with tenants, and there’s the stress of keeping them happy. A property manager can help make this less stressful.

Is building a duplex profitable? 

 

Yes, especially in Sydney where the rental market is still strong. The potential for dual income significantly increases the appeal of duplexes as an investment option. In addition to the advantages of lower initial costs compared to larger multi-family properties and favourable lending conditions, the financial prospects for building a duplex are very promising.