Dual income property has been a popular investment class in recent years. The unprecedented rise in property prices, especially in CBDs (central business districts), has continually driven many out of the market, prompting people to seek alternative living options.
In response to this new market demand, enterprising investors have turned to dual income properties as part of their investment strategy, providing these as innovative solutions to the needs of the market. With this kind of property, an investor acquires two income sources through two distinct rental agreements. This means better cash flow through rental yields.
There are different types of dual income properties. These include granny flats, duplexes, and dual occupancy, or dual-key properties. However, whichever type of dual income property you invest in, you not only enjoy dual sources of income but also significant depreciation deductions. Moreover, you also have the option to live in one and to rent out the other.
So, does this mean you should invest in one now? Before making a decision to invest in this type of property, make sure you consider the following five factors first.
1. Location of the dual income property
A key investment consideration in property is location. As a property investor, you need to conduct due diligence and research to ensure you are buying in the best location to fulfil your investment goals. Is there a high demand for rental family homes in the area? Is there an undersupply of granny flats, duplexes, and other types of this property in the area? How have such types of property fared historically? Be sure to ask these questions first before committing to anything.
2. Council legislation and approval
Before even thinking of bargaining over a prospective property, check the location first. It doesn’t matter if you plan on getting a granny flat built in an existing property, or if you wish to purchase a block of land and build a duplex on it. Find out first if dual income property is allowed in the location you wish to invest in, and be certain that council approvals are more or less guaranteed. Make sure you understand all applicable rules and regulations as well.
Even if you only need to make repairs in an existing property and get a granny flat built to achieve your goal, you need to ensure you are financially capable of shouldering planned and unforeseen expenses. This includes the required down payment, mortgage payments, and interest.
Of course, financing becomes doubly important if you have yet to build a duplex, dual occupancy, or dual-key property. Aside from construction costs, you need to be ready for maintenance and repair expenses in your role as landlord. You also need to factor in those instances when occupancy becomes a problem and you need to stay updated on mortgage payments.
Also consider your potential loss of privacy in case you intend to live on one side of your dual income property. In your role as landlord, you will need to be responsive to requests and or complaints. You need to be prepared to have your privacy disrupted from time to time living right next door.
Remember that since you will have tenants, it can be more complicated to sell. If it’s a duplex without separate titled lots, you need to be ready for the requirements. Moreover, if you decide to sell and one of both residences are occupied, you also need to consider your tenants’ rights. Otherwise, you may end up facing legal issues. Additionally, you need to be prepared for the details a prospective buyer would require, such as details of your lease agreement with the tenants, rent inclusions, etc. In effect, selling your property is a lot less complicated when there are no tenants involved.
Investing in a dual income property is a great way to expand and diversify your portfolio, enjoy capital growth, and pay off your mortgage faster. However, before moving forward, make sure all the bases are covered in your role as an investor, homeowner, and landlord.