Dual-Key Homes: Pros, Cons, and Investment Strategies

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.

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 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.

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

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, making it an exciting new home 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.

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.

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. 

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 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

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

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 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 on to increase their 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.

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.