Tax speculation, increased desire for positive cash flow help duplex resurgence

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Speculation about changes to Australia’s taxation system and an increased desire from investors for cash flow positive properties have helped result in a resurgence in the popularity of duplexes according to one property expert.

Lloyd Edge, director and founder of investment advice firm Aus Property Professionals, said the last 18 months had seen his company file an increasing number of inquiries from people looking to buy or build a duplex.

“There’s been some talk that negative gearing, which I personally think is a little outdated, might be looked at so people are starting to look for investments that are cash flow positive,” Edge said.

“The other thing is the depreciation side of things. With a duplex you’ve got two lots of depreciation you can claim, which is attractive to a lot of people as well,” he said.

While not all investors are looking for properties that are cash flow positive, Lloyd said those more interested in capital gains should also re-evaluate their opinion of duplexes.

“One of the things people often say about property is that you can’t get good capital growth and good yields at the same time, but with a duplex you get two streams of income that can put your yields at 6.5% to 7%,” he said.

“You’re not having to go to somewhere risky like a mining town either, [and you] can build a duplex in a strong area, near infrastructure and the amenities people want to get you good capital growth as well.”

But while the idea of high yields and strong capital growth might encourage people to consider throwing up a duplex on any block they can find, Edge did caution that planning regulations and design need to be thoroughly thought out before action is taken.

“Council requirements differ from area to area. A lot will only let you build on 50% of the block, but then if you go to somewhere like Newcastle you can build on 60% of the block.

“Setbacks can differ as well, so in one location it might you might have to be two metres from the fence, while somewhere else it is three. Turning circles for cars are another area where councils can be quite strict, so you want to make sure you know what you can build in an area before committing to anything.”

While ensuring your plans will suit council regulations is important, potential duplex investors also need to look at more than that when considering a duplex project.

“You want to look for fairly flat blocks. Sloping blocks mean more earthworks, which is going to eat into your construction costs. Taking a look at the contour map for the block and factoring in what might have to be done is an important step.

“Corner blocks are really good. They give the ability to have access from different streets, which really gives more appeal to purchasers and will help with price growth.”

Edge said investors should also do their research into the make-up of the market they are looking to invest in, with areas predominantly occupied by home owners rather than renters the best for capital growth.

While some investors may be looking to duplexes for a positive cash flow, others may be chasing capital gains. Edge said there is one rule either set of investors should follow.

“You do want to make the property attractive for tenants and for home owners, as that will help with the rent you can charge and the capital growth you’ll get, but you need to make sure you don’t over capitalise.

“A lot of people will want to add things because they think it looks nice, but you need to consider if it’s really necessary.

“We had a client recently that wanted to turn a single car garage into a double. That would have meant another $50,000 or $70,000 dollars in earthworks and retaining walls and would really eat into the equity they would’ve created too.”
 

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