Australia's top dual occupancy hotspots revealed as investors chase higher returns

One of the time honoured ways to make money in real estate is to turn your average house in the suburbs into a dual occupancy.

It could also be one of the answers to Australia’s supply problem, unlocking up to a million new homes. That would require just one in four standalone dwellings in major cities to be developed into dual occupancies, according to a report by the Committee for Economic Development of Australia (CEDA).

But there are lots of challenges for investors. Here’s a short guide to successfully converting a standard housing block into a dual occupancy.

Location is king

Like so much in real estate, location is king. You have to look at which areas are best suited to the sort of demand that makes unit development profitable.

I’ve written before about the locations investors interested in development should target with a budget of $1.5 million.

In Sydney, prime choices are spread across a dozen western suburbs, including around Blacktown, Campsie, Harris Park, and Seven Hills.

In Perth it is mainly mid north areas like Duncraig, Karrinyup, Balcatta, Osborne Park and Wembley Downs.

In Brisbane, Kelvin Grove, Paddington, The Gap and Red Hill and select areas in the mid north like Kedron have the right combination of inner suburban appeal and rising land prices.

In Adelaide, best spots include family areas like Magill, Prospect, Henley Beach and Stirling.

Before doing anything though, you need to consider planning issues, which depending on where you are, could be tough. For instance, a NSW productivity report found a quarter of the residential-zoned land within 10 kilometres of Sydney’s CBD are subject to some form of heritage protection.

Site viability

Once you’ve identified a property, it’s time to do some serious homework.

My associate, Michael Kimbel, who works in Melbourne’s eastern suburbs, was emphatic that most problems with dual occupation conversions start with a lack of due diligence.

“Before purchasing land or contemplating a design, you must confirm if the project is possible under your planning scheme, ensuring dual occupancy is permitted.

“If it is, what you’re looking for is a site large enough to accommodate the current and proposed building,” Mr Kimbel said.

“Depending on planning, you will generally need a minimum of 600sqm with a wide enough frontage, and enough space for a driveway with access for both residences.”

Then investors need double check that the location stacks up as a good residential opportunity. And that means figuring out who the target buyer will be.

Kimbel gives the example of the Melbourne suburb of Blackburn South.

“This is very much a family-oriented area in a desirable school zone. Many buyers here want a family-sized home but some aren’t actually that interested in looking after the land or undertaking maintenance.

“What they want is a premium-finished product with three or preferably four bedrooms, and a floorplan that delivers a ground floor master bedroom with ensuite and enough living space to be called a family home.”

In other areas, it’s sites that allow for two-bedroom units that are most in demand.

Doing the numbers on your conversion

So, how big a unit can you fit on the property you’re considering?

Generally speaking, you will need around 250sqm to have enough room for a four-bedroom townhouse, 175 to 200sqm for a three-bedroom townhouse and at least 150sqm for a two-bedroom unit.

Once you know this, you can go ahead and calculate the costs of building along with other expenses such as council fees, project management and architectural drafting.

Then compare these against the expected sale price or annual rental income to see if you’re making good use of land and if you will achieve a good return on your investment.

The granny flat option

In many states, granny flats have enjoyed a resurgence after a dramatic reduction in restrictions.

This trend has opened up genuine opportunities for owners who want to capitalise on their own home’s value.

Modern granny flat’ units are often prefabricated or kit homes, and typically feature two bedrooms, a practically sized kitchen, bath/shower and an open plan lounge/dining along with a balcony.

Costs for these units are around the $150,000 to $200,000 mark.

While they can’t be sold as a separate property without a strata title, these units can be leased out, providing a source of income.

A well thought through ‘dependant person unit’ will add to the overall property’s value, with the income valued by some buyers. Other buyers may see it as a way to accommodate adult children without having them in the house.

This theme of multigenerational living is one we are increasingly coming across in our work in real estate.

Some final tips for dual occupancy success

Dual occupation conversions offer significant potential for investors, but before heading down this path, there are steps you want to take early on to ensure success.

Firstly, always seek specialist advice at the outset. You should be speaking with an experienced property adviser and a town planner early on to assess your plan’s potential.

Secondly, check services availability. It is quite routine for otherwise smart conversions to find connecting with power, sewer and water only comes with a prohibitive price tag.

Right at the beginning, you should also check with local agents to find out what sort of units sell well and which ones struggle. Always design a unit for the market it is in and avoid getting lost in your design ideas only to find out the market doesn’t value your insights.

And finally, prepare a rigorous budget and manage your project closely.