A relatively new concept in Australia, dual key apartments are popping up in a number of states.
A dual key apartment is one that’s divided into two dwellings, with the additional dwelling inside the first and both sharing a front door. Rather than a duplex or divided townhouse, it has one space containing two separate self-contained areas with their own bedroom, bathroom and living.
Nathan Birch, property investor and CEO of Binvested, explains the advantages and disadvantages of this style of apartment.
Advantages of investing in a dual key apartment
While dual key investments don’t fit in with Birch’s personal investment philosophy, there are some advantages.
1. Two dwellings equals dual income
For every property investor, dollars are the key driver and a dual key apartment potentially offers greater income.
So if you’re buying a dual key property, you’ll have two sets of rental incomes on one title, which, according to Birch, is probably the biggest drawcard.
2. Just one set of fees
Property investors know the pain of the expenses, such as strata fees, but with a dual key apartment, this is streamlined.
“You’re only paying strata rates and other expenses on one property, instead of two,” Birch says.
3. Benefits when it comes to tax
With dual key apartments still comparatively new in the Australian market, most of them are newer, and that has upsides when it comes to tax, Birch says.
“With newer properties, you’re more likely to have some depreciation, which in turn would help with taxes.”
You should consult with your financial planner or tax advisor to understand the full tax implications of an investment property.
Disadvantages of investing in a dual key apartment
The downsides to investing in a dual key apartment are numerous. Birch breaks them down.
1. They can have a premium price tag
Given dual key apartments are typically newer, investors can end up paying a premium for them, he says.
“If you’re paying equivalent to or more than the asking price, you’re not sourcing properties below market value.”
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He says successful investors should always look for growth opportunities.
2. Lack of mass appeal
As a relatively new concept, and with a number of property types to compete with, a dual key apartment has limited appeal according to Birch.
“They’re typically only appealing as an investment property as they aren’t great to live in, so would likely only appeal to a small percentage of the rental market, such as students,” he says.
3. The scope for capital growth is limited
Given dual key apartments are mainly limited to the investor market, the upside for capital growth is limited, Birch says.
“If I had a choice between a dual key property or two single properties, I’d rather go for two – that are below market – for the same price as a dual key, leaving you with two separate investments with greater potential for capital growth,” he says. Then, if required, it’s possible to sell one.
Dual key properties are reminiscent of the previous popularity of granny flats in Sydney, Birch says.
“If you’re investing $100,000 in a granny flat, the property isn’t necessarily going up by $100,000 and you’re likely going to need to decrease the rent on the house, because they’re sharing space with someone. You’d be better off putting that $100,000 into a different property.”