This is the intro post in our series ‘The wealth building potential of dual income property’. We own dual income property and it’s been a fundamental strategy in our financial freedom plan. We’re going to take you dear readers through the wealth building potential of dual income property using a bunch of different value creation techniques. You’ll get the real story, warts and all – not the BS sales pitch that real estate developers want you to believe. You’ll also get our tips from the trenches; we’ve made the mistakes so you don’t have to!
So if you’ve been wondering whether a duplex or triplex investment is right for you, read on financial freedom seekers.
What is dual income property?
To start you off, check out this little intro to dual income property on our Traditional FI page. In short, a dual income property is multiple apartments or town houses in one property, giving the owner more than one rental income stream. You’ll often hear dual income properties referred to as duplexes, triplexes or multifamily properties. These are typically in a small complex or are semi-detached in that they share a common wall and some common areas. At the big end of town, they’re entire multilevel apartment buildings.
Picking the right investment property for your financial freedom plan
There are two things about property investment that make it attractive as a financial freedom or wealth building strategy – capital gains and cashflow. When you’re looking for an investment property, it often boils down to a choice between the two.
Capital gains are the increase in the price of the property over time as the market moves (not all property increases in price while you hold it, we’re just saying that this is what you’re aiming for). If you’re aiming to build a property portfolio you can live off, you need capital gains to fund your deposit for future property investments.
Cashflow is generated from the rent your tenants pay you. You need this to be able to service future bank loans to leverage your deposit into more property.
There are also a couple of generalisations in the property market (which itself is a generalisation!) to know about when picking what property to invest in and where:
- City properties are capital gains properties – they tend to be more expensive, grow in price faster over time, and because of this they produce a lower yield
- Properties in smaller regional towns are better cashflow properties – they’re cheaper to buy and the yield is better, but there’s not the market demand to drive high price increases.
We’ve observed these generalisations in real life across different property markets around Australia, although there are always exceptions. Investment properties that give you both capital growth and cashflow FROM THE OUTSET truly are the holy grail of real estate investing. We say from the outset because if you hold an investment property long enough and pay down the mortgage it will inevitably produce some capital gains and you’ll be cashflow positive with rental growth and smaller loan payments….
Anyway…This is all good context to understand where you are at in your investments and your financial freedom planning, what you need to take the next step (cashflow or capital growth) and how dual income property it might fit in to those plans.
What is the benefit of investing in a dual income property?
Dual income properties are typically labelled a ‘cashflow play’ in property investment – because you get more beds, baths and kitchens than in a single-family dwelling. That leads to more rental income. Cashflow is seen to be the major benefit of dual income property investing and it’s what we focussed on when we were looking for a dual income property.
Dual income property gives you a couple of independent income streams. This is an important advantage over single family properties especially if you have a sizeable loan against the property. The thing with rental properties is, tenants vacate them. And when they’re vacant, your rent stops. With dual income properties, you can spread out the rental leases and the natural vacancies that occur between tenants and you always have rent coming in. Huzzah!
Value creation opportunities
The benefits so far are all around income generation. But dual income properties also have massive value creation opportunities and this is why we’re devoting an entire series to exploring how dual income strategies can catapult your wealth building and financial freedom! In terms of a property investment, multifamily properties are extremely versatile and can be a real blank slate opportunity for the motivated, active value creation type investor. Once you’ve set them up, they can also become low risk passive investment – all depending on how they’re run.
Building wealth from dual income property
So how do you leverage this type of property to build wealth? In our dual income property series we’re going to take you through the killer wealth building strategy that we used to pour rocket fuel on our dual income property investment – step by step dear readers. Over the coming weeks, we’ll post about:
- How to buy the right dual income property
- How we turned a $60,000 investment into a $180 per week income and doubled our money in 12 months
- How to explode the equity in a dual income property – twice!
- How we’re killing it with our secret dual income strategy
- Options to cash out from a dual income property
We’re going to take you through what we did, all of the numbers, our tips from the trenches at each stage, and we’ll even share photos along the way. We’ll also reveal some traps for the uninitiated and things we wish we knew BEFORE we got started.
The final word – is dual income property a good investment?
You’ll have to make up your own mind dear readers, once you read through this series and have weighed up the pros and cons yourself. Only you’ll know whether it’s right for you.
One thing to note upfront – dual income property is not an advanced investor strategy! Our first property purchase was a dual income property – before we bought our home! We were property novices – so if we can do it, you can too!