Fern Bay , Seaside, NSW

Case Study: Duplex Development for Profit

Case Study: Strategic Duplex Development for Immediate Profit

Investor Journey and Strategic Decisions

In May 2016, our client embarked on a strategic investment journey by purchasing a block of land to develop a duplex. The plan involved building two 3-bedroom, 2-bathroom, 1-car properties on the same block, leveraging the cost efficiencies of constructing two units simultaneously. This duplex development reduced overall construction costs and provided a pathway to substantial short-term gains.

Investment Timeline and Numbers:

• May 2016: Purchased the land off plan and secured a fixed-price building contract.
• 2017: Land registered and settled, with construction commencing later in the year.
• October 2018: Construction completed and subdivision finalised, resulting in two separate titles for the duplex units.
• October 2018: Both properties sold, with Unit 1 selling for $480,000 and Unit 2 for $505,000.

Financial Overview:

• Cost of the Land, Construction & Subdivision: $766,000
  • Land: $329,000
  • Build Price: $437,000
• Asset Sale Price Oct 2018: $985,000
• Development Profit: $219,000*
  *Gross profit before expenses and interest

Strategic Sale:

The investor sold both units upon completion in October 2018, realising a gross profit before costs and interest of $219,000. This strategy was aligned with their goal of generating development profit rather than holding the properties long-term. The profit was reinvested into their Self-Managed Super Fund (SMSF), showcasing a successful development project.

Current Valuation and Potential Alternative Strategy:

• 2018 Sale Prices: Unit 1 sold for $480,000, Unit 2 sold for $505,000
• Estimated Value of Unit 1 in 2024: $780,000
• Estimated Value of Unit 2 in 2024: $855,000

If the investor’s strategy had been to hold the properties, their combined value in today’s market would be approximately $1,635,000. This represents a capital growth of $869,000 over the initial cost to buy and build of $766,000, equating to an impressive growth percentage of approximately 113.4%. Additionally, the current rental income for both units would be around $1,236 per week.

Key Takeaways:

This case study highlights the importance of aligning investment strategies with individual goals, risk profiles, timelines, and objectives. Upon completion, the investor’s decision to sell both properties delivered immediate profit and liquidity, which were reinvested into their SMSF, meeting their development-focused strategy.

Had the investor chosen a different strategy, such as holding the properties, they would have benefited from significant capital appreciation and rental income. However, this alternative approach needed to align with their immediate financial objectives.

Conclusion:

Every investor’s strategy and goals are unique. This case study demonstrates the success of a development-focused strategy that prioritised immediate profit and reinvestment. It also illustrates how different strategies can yield varying results, underscoring the importance of personalised investment planning and professional advice to achieve desired outcomes.