Benefits of Dual Occupancy Subdivision
A dual occupancy development can liquidate the hidden asset in your backyard. You can just do the subdivision and flick the new lot to pay down your mortgage if you have one or invest in anything worthwhile.
Or you can build the new dual occupancy home. Enjoy the move into the brand new home with its dream kitchen and either sell the original home or sell it CGT free. You also have the option of renting it for that extra income- a great way to release equity for semi or retired persons.
First things first. Can your home or land be subdivided under current Council policies?
How do I dual occupancy and enjoy the benefits of the property subdivision?
A dual occupancy occurs when a permit is granted by your local Melbourne Council to build two dwellings on a block of land which can also be subdivided to create two individual lots of land. A triple occupancy would allow three units on the land making the land cost per unit even less.
Dual Occupancy development types.
Dual occupancy developments could retain the existing house and build one new house at the backyard or in the front yard depending on size, depth, access and how one meets the local planning requirements.
Other forms of dual occupancy developments occur when the existing house is demolished to make way for two brand new houses which could be one behind the other called a tandem design or be side by side which is called a duplex style development. In both instances access, site frontage, depth, orientation play a key part in the design.
The typical dual occupancy development is the tandem style arrangement. When the existing house is retained in the dual occupancy development, one’s capital is preserved because the asset purchased, that is the house on the land, is retained.
The house has value so think twice before you consider demolition! The only time one should consider demolishing the house in a dual occupancy development is if the house is in very poor order or there has been significant growth in the value of the property.
In Australia- and in particular Melbourne and Sydney, there are suburbs where the value of the land outstrips the value of the actual house!
In most middle and outer suburbs the houses have great value as it generates rental income and is easier to finance by typical lenders.
For example, if the house is retained in the dual occupancy development, banks could lend 80-95% of the value of the property. If the house was demolished, banks tend to lend only 65-70% of the value of the land as the house has been removed. This preservation of capital in the eyes of the lender reduces the risk because if, for any reason, the development does not go ahead, the asset retains its value.
Even after the redevelopment, the value of the existing dwelling is by and large retained.
The existing dwelling also generates cash flow during the planning process and in some cases even when the development is underway. This cash flow cannot usually be generated from a vacant allotment.
Dual Occupancy Benefits
Dual occupancy developments are profitable because it maximises the value of the land.
Two houses generate two rental incomes. Even if you sold say the existing house chances are it will be free of capital gains tax which might pay off your mortgage, any debts or release cash to be used for other worthwhile ventures.
Very often, after the dual occupancy subdivision is completed, the original home is sold for almost the price one paid for the whole block of land with the house. The second house then becomes the cream.