Have you heard of dual-key homes?
You’ll need to decide on an investment strategy based on your property investment goals.
Deciding on a property investment strategy can be daunting, but an excellent place to start is considering all your options, including dual-occupancy home designs.
Dual-key homes are a relatively recent concept in Australia, so we thought we’d help you weigh up the pros and cons of this strategy to see if it could work for you.
What Are Dual Occupancy Homes?
A dual-key property is essentially one main property that looks like a standard home from the outside but is designed and divided into two separate units. Dual-key homes are part of the growing trend of dual-occupancy homes, which offer flexibility and investment potential for various family needs.
So think of it as a mix between a duplex and a granny flat. It’s two units on one property, but instead of two mirrored units, like a duplex, it’s usually a house on one side with a unit on the other side or inside.
Generally, dual-key homes have one front entrance door or foyer that leads to two different lockable doors.
Or, amongst the living room, bathroom, kitchen and one or two bedrooms of the one property, there will be what looks like an extra bedroom door that opens up into a studio apartment with its own small kitchen and separate bathroom.
So, unlike duplexes and separate granny flats on the property, a dual-key home is one space shared by two individual tenants.
Current Market Growth and Trends
Interest in the dual-key property market has experienced remarkable growth, with search terms like ‘dual key’ increasing by 31% in Queensland over the past 12 months. Similar searches for ‘dual living’ and ‘dual occupancy’ also increased by 23% and 14%, respectively.
Modern Design and Construction Features
Today’s dual-key homes incorporate independent utility connections, fire-rated walls for safety, noise reduction features, separate entrances, individual kitchens and bathrooms, and often dedicated parking for each unit.
The Pros of Investing in Dual-Key Homes for Two Rental Incomes
As with all investment property strategies, you’ll need to weigh the pros and cons of dual-key homes.
Here are the pros:
1. Two Rental Incomes and One Set of Fees
The most attractive aspect of a dual-key home investment strategy is that you’ll have one home with two portions that can be rented out.
So, you’ll have dual occupancy.
The strategy offers the potential to generate two rental incomes with only one property to manage. Unlike duplexes and attached dwellings (like a granny flat), you’ll essentially have two income-producing properties on one title, and you’ll likely only have to pay council rates and fees for one property instead of two.
This setup is particularly beneficial for accommodating an extended family, providing a comfortable living space for multiple generations under one roof.
The idea is that investors could be in a positively geared position where the property generates enough positive cash flow to maintain itself through the rental income.
2. Live in One, Rent Out the Other to Extended Family
Another advantage of dual-key homes is that property investors can live on one half of the property and rent out the other, making it a practical and income-generating investment.
So, instead of having to repay two loans (one for the property you live in and one for your investment property), you’re only paying one, and you’re generating some income to contribute to the mortgage payments.
The second unit could also be used to create more privacy within a family if you require extra space for a parent or elderly relative that needs to be cared for.
What Are the Cons of Investing in Dual-Key Properties?
There are attractive benefits, but many property agents and experts warn against the risks and pitfalls of investing in dual-key homes.
1. Small Resale Demand
One of the most substantial risks of dual-key homes is that they are generally more attractive to property investors than to owner-occupiers.
Apart from the benefit of having family members close but still somewhat separated, many homeowners prefer not to share their living space.
Keep in mind that the owner-occupier rate in Australia is around 67%.
If owner-occupiers aren’t necessarily looking to buy dual-key homes, the potential resale market is significantly reduced.
Therefore, investing in dual-key homes might end up offering limited capital growth.
2. Potentially Lower in Tenant Demand
While dual-key homes are undoubtedly attractive for families that require extra space for a parent or elderly relative to live close by but still want a little bit of privacy and separation, there isn’t much evidence indicating they’re in high demand.
If they’re not looking for an apartment, tenants generally have a strong preference for standalone homes with a garden.
3. More Stringent Lending Requirements
Home lenders in Australia typically impose stricter lending requirements on dual-key properties than on standard residential properties and apartments.
Lenders generally require higher deposits and more significant serviceability requirements due to the limited demand for dual-key homes.
Serviceability is the ability of an investor to meet loan repayments.
There isn’t a great demand for dual-key homes, so lenders will generally require:
- higher deposits; and
- more significant serviceability requirements.
Serviceability is the ability of an investor to meet loan repayments.
| Pros | Cons | Investment Strategies |
| Two rental incomes with one set of fees (council rates, body corporate) since it’s one property on a single title | Small resale demand as dual- key homes appeal more to investors than owner-occupiers, limiting capital growth potential | Live in one unit and rent out the other to generate rental income to offset mortgage payments |
| Flexibility to live in one unit and rent out the other, or accommodate extended family with privacy | Potentially lower tenant demand as most prefer standalone homes with a yard if not renting an apartment | Rent out both units to generate two rental income streams from a single property |
| Lower maintenance costs managing a single property that generates two rental incomes | More stringent lending requirements from banks – higher deposits and serviceability requirements | Consider future renovation to convert to a 2-3 bedroom single dwelling to increase resale value |
| Potential for positive cashflow from two rents to maintain the property and create “income for life” | Typically located in lower socio-economic areas to make the numbers work | Consult property investment experts to align strategy with financial goals, crunch numbers on income and expenses |
Investment Numbers and Returns
Recent market analysis shows dual-key properties typically start from $650,000, with rental yields ranging between 4.5-6% annually.
What’s particularly compelling is that these properties can deliver up to 20% higher returns compared to traditional single-family homes.
For investors looking to enter this market, prepare for minimum deposit requirements of around $80,000 generally.
In high-demand rental markets, these properties have demonstrated consistent performance, with some areas showing rental yields 25% higher than traditional properties.
Strategic Location Benefits
Success in dual-key property investments often comes from choosing areas with strong rental demand and good amenities access. Recent regulatory changes now allow dual-key developments on land as small as 450sqm, down from the previous requirement of 700sqm, opening more opportunities in prime urban locations.
Tax Deductions On Dual-Key Homes
If you’re a property investor considering investing in dual-key homes, make sure you crunch all your rental income, property expenses, and capital growth numbers before you do so.
As a property investor, you’re entitled to a significant amount of rental property tax deductions, so you’ll need to take those into account when weighing up your options.
For example, did you know that depreciation is the second biggest tax deduction you can claim on your investment property after interest on your loan?
Dual-key homes often attract high amounts in depreciation. Why? Because there are typically at least two self-contained homes within one building.
What does this mean? It means there are at least two bathrooms, two kitchens and sometimes even two laundries.
As quantity surveyors, we recognise that the square metre rate of construction is always more costly than a single-occupancy property. Wet areas and kitchens cost more because they require more significant plumbing work and tiling (referred to as Division 43), not to mention the plant and equipment associated with these areas, such as dryers and dishwashers (which are part of Division 40).
We’ve put together a list of tax deductions that property investors can claim, so make sure you check it out.
A point worth noting is that if you rent out one part of the dual-key home and occupy the other, you’d have to apportion the deductions based on your rental expenses.
Key Takeaways
There is a “no one size fits all” strategy when it comes to property investment strategies.
The key to choosing the right strategy for you is to align it with your financial needs and goals.
If you decide to invest in dual-key homes, you may even want to consider renovating them and converting them into two to three-bedroom single properties later to increase their resale value.
Take advantage of tax depreciation deductions available to you
Property investment is not a one-person show, so you should consider consulting professionals regarding all aspects of buying an investment property.
FAQs
How do dual-key homes compare to traditional investment properties in terms of long-term growth?
Due to a smaller resale market, dual-key homes may have more limited long-term capital growth potential than traditional investment properties. They mainly appeal to investors rather than owner-occupiers, who make up the majority of buyers.
Traditional properties like standalone houses generally have broader market appeal, supporting better capital appreciation over time. However, dual-key homes can provide higher rental yields and cash flow from two incomes. So, while they offer attractive benefits for income-focused investors, their long-term growth may be more constrained than properties with wider market demand.
What does dual-key mean in real estate?
In real estate, a dual-key property is a single property divided into two separate dwellings, typically with a house on one side and a unit on the other, sharing a common entrance.
What is the difference between a duplex and a dual-key?
Unlike a duplex, which has two mirrored units, a dual-key property usually consists of a main house with a separate unit inside or attached. The dwellings in a dual-key home share a common entrance, whereas a duplex typically has separate entrances for each unit.
Is a dual occupancy home a good investment?
Dual occupancy homes can be a good investment as they offer the potential for two rental incomes from a single property, with only one set of expenses like council rates. This can provide better yields and help pay off the mortgage faster. However, they may have limited capital growth potential and appeal to a smaller portion of the rental and resale market.
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Talk to one of our friendly property experts to get a free quote or more Information.
Tuan is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation.
