7 steps for creating instant equity

A must read article for all property investors!

With property markets across the country currently in uncertain territory, its challenging (if not almost impossible) to source and choose an investment property this is going to;

1. Give you a high yield (rental return)
2. Provide instant equity from day one
3. Continue to achieve capital growth in the years to come

Most investment properties are negatively geared, meaning that just simply by owning the property you are making a financial loss and it can take many years for the property to grow in value enough for you to realise any substantial financial gain.

What’s the solution to this problem?

Undertaking a duplex project. It’s not as complicated as you might think, and we do most of the work for you. I’m going to explain in detail what exactly is a duplex and how to manufacture equity rather than trying to predict it.

What is a Duplex & why it makes for a smart investment?

A duplex is a small development project which consists of two completely independent dwellings built on a single lot of land, separated by a dividing wall. Each dwelling has their own connections to all essential services such as electricity, gas, water etc.

Once the building is complete, the single lot of land which these independent dwellings are built on is subdivided to create two separate homes on their own titles of land. This now give you a multitude of options, some of which include;

• Keep both and be positively geared due to the double renal income
• Keep one and sell the other and use the profit to do with what you please
• Move in to one and rent the other out to create passive income

Depending on the location of your duplex project, the average gross yield (rental return) comes to upwards of 6.2% and the average manufactured equity you create is around $95,000 (and in some cases as high as $175,000). Remember you’re not relying on capital growth; this equity is a ‘development profit’ that you have created by undertaking a duplex project… you’re essentially a small private developer.

What is the process?

Step 1 - Finance

Just like any investment property you need to speak with a finance broker to get a clear understanding of your financial borrowing capacity, the higher this amount the better the location you’re going to be able to develop in. The construction cost to build the dwellings is pretty standard from state to state, it’s the value of the land that will likely govern where you can and cannot afford.

Step 2 - Location

Once you understand your budget and borrowing power we can advise you on what locations are going to be the most suitable. It’s important to note that not all councils allow for this type of project but don’t worry, we work closely with several builders and property professionals to research and source land in the right locations.

Step 3 - Design

After you choose the right location and lot of land (we help you with this also), we work with a panel of builders that specialise in this type of small development project and work closely with their in-house architects to design and draft a suitable floorplan best suited to that lot of land and also the local area demographic - this helps in maximising your rental return and also capital growth and equity potential.

Step 4 - Due Diligence

As with any investment its important to do your research. We engage several local and independent real estate professionals to help us to better understand the potential rental return, future saleability and market valuation/appraisal.

Step 5 - Contracts & Deposit

Once satisfied with the location and design its time to secure the land (the same you would with any other land purchase) your solicitor should review the contracts and advise accordingly. At the same time, you will also review and sign the construction contracts and transfer the required deposits land developer and your builder.

Step 6 - Project Management

From here, we manage the entire construction process on your behalf providing you with regular progress photos and updates at key stages of the process.

Step 7 - Completion

Now your duplex project is complete, its time for you to engage a real estate agency to start looking for tenants and/or sell one side, or both, its entirely up to you what you choose to do.

Case Study:

One of our builders recently completed a duplex project for a client in the Newcastle/Hunter region for a total price of $680,000. Each dwelling was a 3 bedroom, 2 bathroom, single lock up garage home (suited demographic of the area and also the lot). The clients engaged a local property manager to lease out each of the properties and they were listed for a price of $420 per week EACH!! This gives them a rental return upwards of 6.4%.

Furthermore, the clients wanted to know how much equity they potentially now have in their project, so they engaged several local real estate agents to provide independent market appraisals on both homes. These ranged from $400,000 to $420,000 for each dwelling giving the clients an unrealised development profit of up of to $160,000 from day one.

In summary

It really is that simple, and we do all the hard work for you;

• Sourcing the land
• Working with the builders, architects and local council to get the required approvals
• Project manage the entire process on your behalf
• Help you choose the right agent to find you a tenant and/or to sell your properties

And we do all of this at entirely no cost to you. That’s right, we help you manage your development project that could potentially manufacture upwards of $160,000 in equity and our services won’t cost you a cent… We are compensated by our builders who pay us a referral fee for delivering them a consistent flow of clients. It really is win-win-win.

• You WIN by undertaking a development project and creating usable equity and positive cashflow
• The builder WINS because they have gained a new client
• And we WIN by receiving a referral fee from the builder and hopefully the future business of your friends and family

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