Dual occupancy investment properties have become increasingly popular in recent years as a way to generate rental income. A dual occupancy property has two separate dwellings on one block of land, often configured as a smaller dwelling in front of a larger dwelling at the rear. Investing in a dual occupancy property can provide higher rental yields than a standard single dwelling investment property. However, there are also some additional risks and considerations. In this article, we will explore the pros and cons of dual occupancy investment properties to help you determine if this type of real estate investment aligns with your goals and risk tolerance.
Higher rental yields from dual income streams
The main benefit of a dual occupancy property is the ability to generate rental income from two separate dwellings instead of just one. You can potentially double the rental yield compared to a standard single dwelling investment property. The configuration with a smaller dwelling in front and larger one at the rear caters well to different tenant types. For example, the smaller front dwelling may appeal to students or single occupants, while the larger rear dwelling could accommodate a family.
Increased costs and maintenance requirements
While rental yields may be higher, dual occupancy properties also come with increased costs. As two separate dwellings, there are double the maintenance requirements. You need to furnish both properties, conduct repairs on two properties, and pay for utilities and council rates on two dwellings instead of one. Renovation and improvement costs are also amplified. Carefully consider the ongoing costs of owning a dual occupancy and ensure the rental yields justify the additional expenses.
Zoning regulations and development approvals
There are often zoning and development approval requirements to construct a dual occupancy property. Seek advice from your local council planning department to ensure the property complies with regulations before purchasing. Rules can vary significantly between councils. You may also require approval to convert an existing property into a dual occupancy configuration. Ensure you have the correct approvals in place as unapproved dual occupancies can be problematic.
Mortgage financing considerations
Dual occupancy properties usually require a commercial loan rather than standard residential home loan due to the dual income streams. Commercial loans often have higher interest rates and deposit requirements. Refinancing could also be more difficult compared to refinancing a residential property. Consider financing options carefully as access to finance and cash flow is critical for property investors.
Dual occupancy properties can provide higher rental yields but also come with increased costs and risks. Carefully research the specific property and local market to determine if a dual occupancy investment aligns with your goals and risk tolerance. Weigh up the pros and cons and seek professional advice before investing.