A dual-occupancy development is twice as nice
As we look to what's ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.
A dual-occupancy development is a relatively low-risk way to dip your toe into property development. The simplest dual-occupancy is building a duplex. A duplex is two attached villas/units. So this is almost like building one larger house.
Another type of dual occupancy is to build a second dwelling behind or next to an existing house.
But my preference is to build two freestanding dwellings. At Property Bloom we look for nice corner blocks that will allow us to build two free-standing villas or houses. By “nice” I mean a flat block. Each dwelling will have its own street frontage and face a different direction. You can then simply subdivide so that each villa ends up on its own, albeit smaller lot. The dual occupancy will then appear to be two separate single dwellings. While each will be on a smaller lot than perhaps the other homes in the street, they may be valued not too much less than the same size dwelling on a larger block.
The wonderful thing about a dual-occupancy development is that the build costs may not be that much more than building one larger house. However, the land cost is halved for each dwelling. This is how the numbers stack up and we can create over a $100,000 in equity through building a dual occupancy in the large regional towns we choose to develop in.
Let me take you through the figures on a dual-occupancy development we currently have available. Last week, we were offered first option to secure the best lot in a new land release in an upmarket estate in the town of Muswellbrook. We quickly secured an 892-square-metre lot that was virtually flat. There will only be three dual-occupancy sites offered in this release, so that means that the majority of dwellings will be houses and probably built by owner-occupiers rather than investors in this particular estate. That’s a big tick for when we complete the villas and clients rent them, as there will be less rental property in this area competing.
The cost of the land is $160,000, pretty cheap for almost 900 square metres of corner block, eh?
Bonus: The lucky client may not need to pay any stamp duty under the NSW Builders Bonus scheme:
Set up costs include; solicitor fee, contour survey and soil test: $3,000
Estimated cost to build two freestanding three-bedroom, two-bathroom villas with double lock-up garages: $450,000
The build cost above includes all costs associated with the development; council fees and charges, design costs, turnkey building costs and even subdivision. We request that our builder loads everything into the building contract so clients can maximise their construction finance.
Contingency and holding costs: $15,000
Property Bloom strives to minimise holding costs (interest on the land) paid by negotiating a low deposit and an extended settlement period on the purchase of the land. During the settlement period we work fast to design the project, prepare and lodge the development application with the council and generally we can obtain development application consent before our client settles on the land. This means we can swing quickly into action to obtain the construction certificate and then start to build. The build phase is approximately six months for a dual occupancy.
Total estimated costs for dual-occupancy project: $628,000
Estimated end value of each villa: $370,000 each or $740,000 for both
To find out the equity created in this project we take the estimated end value of $740,000 (for two villas) away from the total costs of $628,000. This leaves $112,000. Not a bad result within a 12-month period.
The rental return expected on the two villas is $450 per week or $900, giving a gross yield of 7.5%.
Jo Chivers is director of Property Bloom, which manages property development.
Photograph of Property Bloom duplex in Hunter region, NSW.