When it comes to building a new home, building multiple homes on the one block of land may not be the first option on your mind. However, building a duplex has several advantages for promising homeowners, particularly when it comes to maximising the potential investment of your land and accommodating extended family.
Want to know more? Here’s a closer look at what a duplex is and why you should build one.
What is a duplex and house behind a house?
A duplex is a residential building that consists of two homes which share a common central wall, or a single block of land that has two houses on it. We call this a house behind a house. If the pair of homes exist on one land title, you can own both and sell them together, or subdivide the land and sell the homes separately. You can also consider renting one or both of the homes for extra income.
If the homes have separate titles, each one can be individually owned and sold/rented out. In regards to insurance, owners can choose to insure both buildings together or separately. A body corporate is usually not required, which means you don’t have to pay body corporate fees, further boosting your rental income.
A duplex is a solid investment. It can produce strong value growth and high rental yields for a much lower price than a detached house.
Moreover, building a duplex involves subdividing and servicing the property to furnishing it with your choice of carpets and blinds before selling or renting it out.
Overall, with a duplex, you can increase your profit and maximise the potential investment on your land.
4 reasons to build a duplex
1. Increased funds for your mortgage
Do you want help with your mortgage? If so, you should consider investing in a duplex.
A duplex can create equity quickly, however, this will vary from situation to situation.
For example, the land cost to build the duplex, and subdivision and council fees could cost you about $600,000. After the duplex is built and subdivided, you can sell each of the homes for $350,000 and earn a profit of $100,000 within 12-18 months.
A duplex can also generate a high rate of return. For instance, you can rent out each home for $350-$400 a week and achieve a high return of 6.1% to 7% per annum. You could also consider renting out just one side of the duplex to a tenant while you live in the other and you’ll still achieve an ongoing high-interest return.
The extra income you earn from selling or renting out the duplex can be used to pay off your mortgage quicker.
2. Keep elderly family members close
With a duplex, you can live in one home and have elderly relatives live in the other. If your ageing parents or grandparents live right next to you, you can quickly go to them and give them the care and support they need. This is especially important if they have health issues. You can help each other out with cooking, chores, and providing much-needed company.
What’s more, elderly relatives who live next door can avoid or delay having to go to a retirement village or nursing home. It’s also cheaper than paying for another house, unit, or retirement village, allowing them to save some money.
On the other hand, if you’ve got young children and don’t have the time to always take care of them or you can’t afford to pay for childcare, having grandparents live close by is beneficial. They can provide unpaid care for your children while you work, shop, or go out for entertainment. They can also be good company for your children.
3. It’s a good introduction to the property game
Fancy being a landlord? You can get started by building a duplex, living on one side, and renting out the other. You’ll learn about landlord-tenant laws in your state, customising a lease, collecting rent, and screening potential tenants. Plus, if you live next to your rental property you can see it every day, check for any repairs that need to be made, and ensure your tenants behave properly.
On the other hand, you can rent out both sides of the duplex and pick up two income revenues. The rental return rate can make for positive cash flow from the start.
What’s more, the potential to have no strata title structure means you can reduce holding costs and increase your rental return, as well as gain more control over the expenditure of both homes.
4. Increase your revenue with AirBnB
You can earn more money renting out one or both of your dwellings through AirBnB (a vacation rental site) than if you rented it out on a traditional one-year lease. This is because you can charge more for vacation rentals, which are short-term stays. People are also willing to pay more for a shorter stay than for a longer stay. You can expect to earn about double than what you would’ve made with a standard lease.
Keep in mind that that renting through Airbnb is subject to council restrictions, so get in contact with your local council first to see what your options are.
So if you need extra income, AirBnB provides self-regulating (through guest and host reviews), free-market solution for collecting short-term market-rate rents. Simply post an ad on Airbnb (include quality photos and lots of details) and when you find a tenant, they’ll pay you, the host, for accommodation.
If the duplex is furnished well and situated close to all local amenities, you can rent it out for a high price per night or week. You can also rent out individual rooms or a spare room in the home you live in for a lower price. To ensure you get bookings, however, your prices shouldn’t be higher than other AirBnB duplexes.
Disadvantages of a duplex
While there are some fantastic advantages, as with everything in life, the pros come along with some cons.
1. You have to deal with tenants
Not only does owning a duplex mean that you need to deal with tenants but it also means that you live with them. There’s no one to work through and at times it can mean they come knocking with every small problem.
The good news is that as the landlord, you get to choose your tenants, which means you can be very selective about who your neighbours are. But regardless of how ruthless you are, there’s still no absolute guarantee that you’ll get along. Of course, that’s true of every neighbour, however, there’s something different about the landlord/tenant relationship that you really need to be careful about. Remember, that’s your property you’re dealing with. You really don’t want to get your tenants offside.
2. Rental income isn’t always guaranteed
Just because the property is there, doesn’t mean you’ll be able to rent it out. As with every investment property, it takes time to find tenants, especially if you’re being picky about who you’ll live next door to.
On top of that, every time a tenant finishes up, you’ll need to work your way through the process all over again. And remember, every week the property is empty, you’re losing out on valuable rental income.
Of course, if you’re careful about your screening process, it is possible to find long-term tenants who will stick around, helping with rental cash flow. But even then, emergencies or issues can arise, causing a vacancy.
3. The various responsibilities are always on you
You’re the landlord, which means you’re responsible for every repair needed. Maintenance, repairs and cleaning between tenants are all up to you and while you can organise for cleaning companies and maintenance help, the cost must be bared by you and you alone.
This also may include replacing large appliances such as dishwashers and ovens, repainting when required and dealing with council issues. These costs all eat away at your rental income as the money has to come from somewhere.
What’s the answer?
When looking to build a duplex, always weigh up the advantages against the disadvantages to see whether the situation will work for you. While it’s an excellent way to earn a rental income, this income isn’t always guaranteed. However, for many duplex owners, the ability to live in one part of their home and renting out the other half to hand-picked tenants works well. In fact, it can even lead to new friendships and a feeling of community.
At the end of the day, there’s no right or wrong answer. Just the right answer for you and your circumstances.