Slower housing markets often compel investors to seek out more inventive ways to produce consistent growth and cashflow from their property portfolio. Renovating an existing rental asset is one option. But have you ever considered the possibility of a duplex or triplex development?
Why would you?
There are numerous benefits to duplex development. Here at Trilogy Funding, we’ve helped many clients successfully secure the necessary finance to don the developer’s hat, so to speak, and break ground on these smaller scale construction projects, which have gone on to become veritable cash cows for their portfolio.
Of course as with any type of property development, constructing a duplex or triplex dwelling can also have downsides, and inherent risks to be aware of. This is a complex undertaking that requires meticulous planning and the right type of finance for long term success.
Some investors see duplex developments as a sophisticated way to build growth into a property that might otherwise take years to produce any decent capital.
Often, on completion of the build, there’ll be sufficient equity in a duplex or triplex development to leverage immediately for the potential acquisition of another property asset.
And let’s not forget that you end up with two or three properties from which to draw a rental income; further consolidating your cashflow and making yourself a more attractive prospect for lenders into the future. For the same cost as a single piece of land.
While the average three bedroom home in the inner suburbs might rent for say $650 to $700 per week, a three bed duplex in the same area could see each dwelling tenanted for $550 to $600 per week. That’s a combined income of $1,100 to $1,200 per week. Pretty compelling figures.
Let’s talk numbers
While duplex developments are relatively simple undertakings, compared to larger construction projects, there are still a number of important considerations when it comes to financing these investments.
Obviously lenders see any type of development as potentially carrying greater risk, than your standard purpose built “box on a block” financing arrangement. But that’s not to say obtaining finance for construction of a duplex or triplex has to be overly complicated.
As mentioned, we’ve successfully done so many times for our clients. So, here are five insider facts that might assist you to make a decision one way or the other, if you’re at all on the fence about duplex development…
1. Some financiers will suggest you require at least 30% of the value of the property as a deposit because a duplex is seen as ‘higher risk’ by the banks. However, here at Trilogy Funding we’ve had great success in securing normal residential loans with a standard 80% LVR and interest only repayments, for clients going down the duplex path.
2. Both rental incomes that will be generated by the property on completion, are taken into consideration for debt servicing requirements.
3. Most lenders are becoming increasingly familiar and comfortable with the construction of a duplex for investment purposes.
4. Lenders can value a property on a “to be erected” basis, however be aware that comparable sales can be tricky to come by. Hence, you need to be prepared for a more ‘realistic’ valuation price than you might otherwise anticipate.
5. Your builder can include subdivision costs in the building contract, so make sure you speak to them about this upfront.
Finally, many would-be duplex developers are under the impression that these dwellings must be adjoining, however this is not actually the case.
Two separate houses on a large block can also qualify as a duplex, for financing purposes. And in fact some lenders will happily allow you to construct three houses on one block, under normal residential lending parameters.
If you’re interested to learn more about how Trilogy Funding can assist you to add two to three new, high-income producing assets to your portfolio, consolidating your capital and cashflow in this quieter phase of the property cycle, click here to connect and make a time to speak with one of our experienced brokers.