A quick primer on Dual-Occupancies for property investors

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Dual Occupancy

With the ever-increasing price of land, it can make sense for property investors to capitalise on the land value by developing a dual occupancy.

A dual occupancy development is about making one block of land with one dwelling into one block that has two dwellings. Later, this one block can be subdivided, and any of the properties sold. A dual occupancy development can boost investment cash flow and if done right should increase the value of the investment. A dual-occupancy investment typically results in higher rental returns without the added expense of buying more land.

A dual-occupancy is a premises containing two dwellings on one land parcel (whether or not attached) for separate households. A dual occupancy may be contained on one land parcel (lot) or each dwelling unit may be contained on its own lot subject or some form of community title scheme, or strata. Community title schemes are often gated communities.

Dual Occupancy development types

Dual occupancy properties are known by many names like “granny flats”, “dual key”, “dual occupancy”, “dual dwelling”, “dual living”, “auxiliary units”, “secondary units”, “ancillary units” and “family accommodation”. They come in many shapes and sizes. Granny flats typically generate less value than duplexes.

There  are typically three types of dual occupancy developments:

  1. A dual occupancy could either retain the existing house and build one new dwelling somewhere on the property;
  2. A dual occupancy can be created under the same roofline by re-organising the internal structures, or 
  3.  A dual occupancy can may require the existing house be demolished to make way for two brand new dwellings which could be one behind the other (tandem style) or be side by side (duplex style).

The typical dual occupancy development is the tandem style where the existing house is retained as this preserves capital.

As a general comment, normally where the house is retained in the dual occupancy development, banks could lend 80-95% of the value of the property. Banks tend to lend only 65-70% of the value of the land where a house is demolished. Also regarding the serviceability of loans banks look at total potential income for the dual-occupancy and typically will consider 80% of that.

From a loan perspective dual occupancy reduces risk and increase the ability of an investor to service the loan. Should one tenant leave, rental income will still be forthcoming from the other property to cover costs.

The Benefits of Dual Occupancy Investments

Buying a property that is suitable for dual occupancy can be a way for first time home buyers to get their foot onto the property ladder and become an investor at the same time. Dual ocupancy provides solutions to a number of challenges facing people, like:-

  1. With dual-occ a buyer can rent one dwelling out while they live in the other – this investment approach will lower the owner’s residential costs. And help with their mortgage which can be significantly subsidised by taking on tenants in the second dwelling.
  2. It can improve the affordability of building in a location that may otherwise be out of of a buyer’s price range.
  3. A good way to split a purchase between two friends, family or investment partners.
  4. Could be an option for elderly people. They can sell their home – live in one duplex and earn a regular income from the other duplex

Why are Dual Occupancies electrifying

Dual occupancy provides dual rental income that accelerates attainment of becoming cash flow positive. 

Which in turn speeds up building a property portfolio for an investor. Dual occupancy is an opportunity for people to change the composition of their negatively geared portfolio to create a neutral portfolio or  a positive geared portfolio. Dual occupancy properties often can get rental yields that are higher than what a suburb would typically deliver from traditional rentals.  In the property investment world dual-occupancy provide an edge and are a distinct class of property investment.

There are many good building economies from undertaking a dual-occupancy development when compared to building two separate dwellings on different blocks of land. Dual-Occs can be built for a much lower cost because of having the trades do things at once for two dwellings. This ‘building economics’ create equity and value growth. Buying duplexes from developers will usually mean that this value is clipped along the way diminishing the value pool but not completely eroding it.

Often dual occupancy properties are purchased for the land value where the existing older property is demolished. Purchasing such a property and developing an Dual Occupancy usually results in more equity at the completion of the construction. This equity can be leveraged by investors on the next project while retaining the recent project.

Normally equity gain in property usually happens from the growth of a property’s value. However building a dual-occupancy investment property creates value from economics of building two dwellings at the same time. These properties can then be valued as two separate properties creating an increase in equity. So developing a dual-occupancy is a process of being in control of value creation more than just relying on properties to increase in value.

The other reason value is created is that on the same land an investor gets a better return. For example a 4-bedroom house will typically rent for less than two 2-bedrooms duplexes that fit into the same land. Or that is an investor is more likely to get a higher yield. This is why dual occupancy generally provides higher rental yield and rental income. They are an attractive investment for investors chasing yield.

On Subdivision of a Dual Occupancy

When people purchase a property they typically associate it with Torrens title. So it is normal when sub-dividing a dual-occupancy that investors tend to go in this direction not realizing that it can be done using strata.

It is worth restating that a dual-occupancy does not need to be sub-divided if it is not going to be sold.  For an example an investor can have the duplex on one title. There is no rush on the completion of the duplex development to register the subdivision. Investors could register the subdivision years down the track when and if they decide to sell. If they do the ground work right this can be easy to do.

There are practically two approaches to sub-dividing title to a dual-occupancy – a Torrens title sub-division or a dual occupancy strata subdivision. Strata is more commonly associated with dense multi-unit developments, rather than dual occupancy projects.

Strata subdivision can occur horizontally and/or vertically with both land and buildings. A strata title represents the title to a unit that has been created on a plan of strata subdivision of land and/or buildings into units. These units can be owned separately and the common property owned communally. Queensland appears to be the leading innovator in strata law in Australia.

If an investor has two dwellings sharing something in common, like a driveway, a solar system, or a common hot water service there must be some formal agreement on the upkeep of these common things or common property.  A strata subdivision automatically covers this really well whilst a Torrens subdivision is silent on how common property is maintained. This leaves maintenance up in the air and could create issues in the future.

A surveyor normally sets up the Strata Plan giving each dwelling its own land on title with the objective of minimising common areas.A small (two lot) strata subdivision have an exemption from the more formal strata management of larger schemes that you find for dense multi-unit dwellings, like a block of flats.

Once an investor decides to sell one dwelling and keep the other one, after registering the subdivision, all costs associated with the management, maintenance, repair and insuring common property will be shared by the owners in direct proportion to their lot’s respective unit entitlements. In the case where each duplex is equal each lot will have one unit entitlement, so it becomes very straight forward to manage. Each owner is responsible for 50% of any costs to repair or maintain the driveway, solar system or any other thing that is common property.

Setting up the strata title subdivision for a duplex development could be better than to subdivide using Torrens. Not only does a small strata subdivision (with two lots) cost less in development costs than a Torrens subdivision, it is also a much quicker process.  ‘Two lot’ strata schemes exist in most states in Australia. Each state is covered by their own act and are different in different areas. Victoria, NSW and Queensland have such schemes.

In NSW Small Strata Schemes – those with 2 Lots have special provisions that are different to the other schemes that have greater than two lots. Two lot (dual occupancy) have an unusual place in the world of strata, they’re exempt from some of the rules that larger schemes but still need to hold meetings, records and some insurances. These can be summarised as:

  1. two owners automatically form the Executive Committee removing the requirement for an election and a quorum for all meetings is when the 2 owners are present
  2. Building insurance is not compulsory where the two buildings are detached and there are no additional buildings on common property. However, both owners must agree to not take insurance cover by unanimous resolution at a meeting. Each owner can insure their dwelling.
  3. Where the dwellings are detached, the owners can decide not to have a sinking fund (capital works fund) provided there are no additional buildings on common property. Both owners must decide this at a meeting.
  4. two-lot schemes do not need to have audits of accounts and financial statements.

Matter fully supports Solar-for-Dual-Occupancy

Matter Technology supports ‘Solar for Renters’ service for Dual Occupancy property investments. Keeping up with the latest property investment asset class to capturing the imagination of developers & investors. (see Matter’s media release “Matter Launches Dual Occupancy” )

The most obvious way to boost income for dual-occupancy is why wouldn’t you use the roof-space of both dwellings to generate more cash flow and increase value. This is where Australia’s startup Matter comes into the picture. They are the inventors of ‘Solar for Renters’ a popular service for property investors and tenants to benefit from Solar. (for more on how Matter’s service can be used for Dual Occupancy )

‘Solar for Rentals’ is a service that provides a straight forward way for property investors to generate considerable value from selling solar power produced on their investment property to their tenants. Instead of power utilities making all the money the tenant pays the landlord a reduced rate for solar power produced during the day. It’s a win-win, but it can make considerable value to a property investor.

All this is possible because of the never-ending escalating price of grid power, Matter’s innovative technology and their remarkable ‘Solar-for-Renters’ service. For an upfront investment of about the price of a decent paint job a property investor can generate extra value of somewhere around $85,000 when coupled with “Matter Money”. Interestingly they can potentially make up to $200,000 of value if things go the investors way. ‘Matter Money’ is a service that boosts value for property investors from ’Solar for Rentals’ cash flow.

Matter also supports the possibility for dual-occupancy property investors making more from their investment from other common or shared things or services, like hot water systems, air conditioners and evaporative coolers to name a few. Matter will have more to say on this soon.

Matter now supports not only supports single occupancy they have also included in their service repertoire dual- and multi- occupancy for its popular ‘Solar for Rentals’ service. This is good news for property investors as it opens up more avenues for positive cash flows.

‘Solar for Dual-Occupancy’ allows a property investor to install one solar system that is used by both rental dwellings in a dual-occupancy so that they can earn extra cash flow by providing tenants cheaper, cleaner energy that they are charged for. This coupled with “Matter Money” becomes rocket-fuel that generates significant value for a property investor.

The property investor can now take advantage of rising energy prices and do something positive about the energy crisis for the tenant and their investment portfolio and pocket.

You use one property for dual rental income why not use one solar for two more incomes. One property, four incomes.