How to create your own capital growth in 2017

Building a duplex for capital growth disproves the mathematical equation 1/2 + 1/2 = 1, because the two units have a combined rental return and equity greater than an equivalent single dwelling on the same property!

People are looking to more creative forms of property investment, ones where you are not waiting for capital growth the traditional way. Through building a duplex you can ‘create your own capital growth’. Not only can you create substantial equity in a reasonably small amount of time but there is also the added benefit of the dual income. The yields can be as high as 6.5 to 7% plus there are major depreciation benefits. Two lots of depreciation!

Amongst the many benefits of building a duplex are:

  • Instant equity increase on completion – This involves strata titling as two units are worth more combined than an equivalent single house on the same property (one title).
  • Manufacture your own capital growth regardless of market movements.
  • Better rental return (often around 7 percent or higher)
  • Choice of strategies – Keep both units, sell both, or keep one and sell the other.

When you build a duplex it is one block of land and you are building one house. But the beauty of it is you are actually building two units within that house and on completion they can be strata titled and become separate properties, on separate lots.

I always do feasibility studies on every potential duplex project for both myself, and my clients. We always look for an equity gain of over $100,000. If the total cost of your project is say $550,000, including the land, construction and all council costs and you build in an area where units are selling for $340,000 each, then at $680,000 total, that’s a $130,000 development profit, minus costs such as stamp duty, legal fees and holding costs during construction.

Duplexes can be built in areas with all the major pillars of economic growth, including good infrastructure, rising population, jobs, hospital upgrades, good transport links, education, close to lifestyle amenities such as cafes and restaurants and low vacancy rates. You don’t need to go anywhere risky like a mining town.

Not just any block is suitable for a duplex build. People need to carefully check the zoning and council requirements are different from area to area. Some councils will only let you build on 50% of your block while others will let you build on 60%. It is also important to check what the setbacks from the road and from the boundary fences are.

Seek professional advice to maximum capital growth

It is important to seek advice from an expert in the field. The last thing you want to be doing is buying land and then finding out that you can’t build on it, or that the suburb or town only allows single residence dwellings.

While ensuring your plans will suit council is crucial, potential duplex investors need to be aware that there are also other important factors to consider.

It is important to find fairly flat blocks. Sloping blocks will mean more earthworks, costing more and eating into your potential equity gain. This does not mean that a sloping block won’t work but the additional costs need to be factored into the feasibility. Obtaining a contour map and sending to your architect will assist in getting accurate pricing.

It is also good to build in areas that are predominantly owner occupied. These areas generally get more capital growth than suburbs that are solely investor driven. It is also important to buy with an exit strategy. One day you will need to sell and the demographic you should be targeting is the owner – occupier market as they are more emotional when it comes to purchasing property. You also want to do something unique. Ensure you build where there won’t be many duplexes in the area and do a quality build.

Lloyd Edge

Lloyd Edge

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