It’s no shock to anyone these days, that everyone is looking to make a quick buck. The problem is that most people are too willing to go in over their head to try and make that extra money.
In the market we are currently in, it is becoming more and more common that everyone's "go to" when they're trying to make some quick money in property, is to give a renovation a go. Renovation tv shows and success stories promoting how much money people have made from successful flips, has turned everyone into an overnight renovation expert. And look that’s fine to give it a go, but all we say is, don’t get in over your head. Because the problem is, much like gamblers, you only ever hear about the wins - no one ever preaches about their losses.
Let’s take a step back though. Why are you thinking of a renovation in the first place? The reason behind it is to add value to the property or to manufacture equity right? This is a good strategy to do if; you know what you’re doing, if you already own a property with reno potential, or if your resources are low (meaning your buying power) and a cosmetic flip is the most affordable way to boost your equity position in your portfolio.
However, we find that a lot of people are going into the market place looking to purchase an existing property and then add a reno on top with their goal of doing a ‘quick flip’ or to manufacture growth. This is a strategy that can take 12 months to complete and in some cases a lot of hard work and personal time spent.
Before you adopt this strategy, stop, think and explore your other options.
If you are looking to manufacture equity then why not consider an instant equity strategy – A duplex option. Again it all depends on your personal situation, but if you’re budgeting $800k for an older property and doing a flip, then you could possibly compare it to building a duplex and creating some instant equity.
What is a duplex?
A duplex is a purpose built single dwelling that contains two dwellings that are normally attached through a firewall. Once built, you will subdivide the build and strata title each property so that they are separate dwellings. So basically, you are building one big dwelling that will evolve into 2 properties.
How does instant equity work?
Essentially you are combining 2 strategies – subdivision and growth through building.
For Example - You will be building what’s really a 6 bedroom house with 2 kitchens 4 living rooms and 4 bathrooms. The banks will value it with these specs and may value it as a $800k house. During construction, the subdivision process will start where you will get development approval, council approval and strata titles. So that by the time it’s finished you will have 2 separate dwellings. This is where the equity uplift comes from, as you can then get valuations done on each property separately. When done right, your $800k single dwelling should result in 2 separate dwellings valued at $440k each – sometimes more!
Thus $80,000 instant equity – Gained over a 6 month build time, with fixed contracts and absolute minimal risk.
Sound complicated?
Well no it shouldn’t be. If you’re getting support from someone like us.
We deal with builders and developers on a daily basis. When looking at Duplex deals there is a lot of homework that goes into it. But most importantly we make sure that clients will only ever be looking at fixed price contracts that include development approvals, council approvals and strata titling. That way, you get to go through the whole process of building and subdividing but having professionals oversee and manage it all to make sure it gets done right and on time. Perfect if you're someone who's wanting to learn how to do these sorts of things yourself.
Why spend 12 months and many man hours on a renovation prospect, when you can lock in an almost certain 6 month equity uplift through a well calculated duplex investment?
As we said, it’s not the right strategy for all, but from our experience, an investment strategy like this comes with a hell of a lot less risk and almost more certainty of a quick profit.
But wait – you haven’t read the best part.
The flexibility!
Duplexes offer you so much flexibility upon completion.
Option 1 – Sell both properties and walk away with your profit and move onto your next project.
Option 2 – Keep both properties and rent them out. When done right they should be in areas where they will also receive a positive cash flow. That way you will have an investment that’s given you equity uplift AND positive cash flow. Win Win!
Option 3 – Live in one and rent one out. We have found a lot of people love the benefit of having someone else pay their mortgage. The best way to do it, without living in someone else’s back pocket is through a Duplex. Plenty of space and privacy!
Option 4 – Sell one and keep one. Let’s say you have a debt of $600k on your ($800k purchase price) duplex. You decide to sell one at $440k and pay the debt down $160k. You will end up with one dwelling with a debt of only $160k and receiving rent of $480 – doesn’t take a scientist to figure out you'll be getting some bloody high positive Cash flow. PLUS you have just freed up a hell of a lot of 'serviceability' (in lending) that can go towards another investment opportunity.
So much flexibility - so many options!
If there is anything else you wish to know about instant equity or duplexes, then please feel free to contact us.
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