The Pros and Cons of a Dual Key Homes Investment Strategy

online property valuation

Tuan Duong

Have you heard of dual key homes?

Depending on what you had in mind for your property investment, you’ll need to decide on an investment strategy

Deciding on a property investment strategy can be a daunting task, but an excellent place to start is considering all your options. 

With dual key homes being a relatively recent concept in Australia, 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 Key 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. 

So think of it as a mix between the concept of a duplex and a granny flat. It’s two units on one property, but instead of two mirrored units, like with a duplex, it’s usually a house on the one side with a unit on the other side or inside. 

Generally, dual key homes will have one front entrance door or foyer that will lead to the two different lockable doors.

Dual Key Graphic

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. 

What Are the Potential Pros of Investing in Dual Key Homes?

As with all investment property strategies, you’ll need to weigh up 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 homes 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 is that there is potential to generate two rental incomes, with only one property to manage.

This means that: 

  • 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 body corporate fees for one property instead of two. 

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

The second possible advantage with dual key homes is that property investors could live in one half of the property and rent out the other half. 

So instead of you 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. 

Or, 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. 

Dual Key - Family

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 and not owner-occupiers. 

Other than the benefit of having family members close but still somewhat separated, not many people enjoy the idea of sharing their home with other people.  

Keep in mind that the owner-occupier rate in Australia is around 70%

So, if owner-occupiers aren’t necessarily looking to buy dual key homes, the potential resale market is significantly reduced. 

So 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 who 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

According to the CEO of RiskWise, Doron Peleg, home lenders are likely to implement stricter lending requirements compared to when investors invest in standard homes or apartments. 

Dual Key Isometric Graphic

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.

Tax Deductions On Dual Key Homes

If you’re a property investor looking at potentially investing in dual homes, make sure you crunch all your rental income, property expenses and capital growth numbers before diving into it. 

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 of 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 the square metre rate of construction is always more costly than a single occupancy property. The 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 (that 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’re renting out one part of the dual key home and occupying the other, you’d have to apportion the deductions based on what your rental expenses are.

Key Takeaways

There is “no one size fit all” strategy when it comes to property investment strategies.

The key to choosing the right strategy for you is to align with financial needs and goals. 

If you decide to take the plunge and invest in dual key homes, you may even want to consider renovating it and converting it into two to three-bedroom single property later down the track to help the resale value. 

If that is the case, you’ll want to consider your depreciation deductions. 

Property investment is not a one-person show, so you should consider consulting professionals regarding all aspects of buying an investment property. 

To see how Duo Tax Quantity Surveyors can help you with your future property, get in touch with us today.

Duo Tax team working together

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Disclaimer: Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek a second professional opinion for any legal or tax issues raised in your investing affairs.

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Tuan Duong

Tuan is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation.

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