Would you seek private investment in your new home?

What if you build a duplex and sell one dwelling to subsidise the other - your new home. If you can't raise enough debt to cover the development costs, would you consider getting private investors to help out?

One way to get a brand new home for a wholesale price is to build a duplex, live in one side and sell the other.

This can help you afford a home in the suburb where you want to live, rather than buy in a suburb that you find less desirable, or buy a less desirable home in your preferred suburb.

While the cost of developing a duplex is not insignificant, equity investment can help you cover costs if you can’t get a big enough loan. You need to pay the investors a decent return – 15% p.a. is common – but you will still be ahead if you choose the right site and manage the risks. See my post on risk mitigation, coming soon.

Take this example in Ryde in Sydney’s north. One side of this beautiful duplex sold for $2.6 million in December 2024. The other sold in May 2023 for $2.4 million. It was built on a site that was acquired in April 2022 for $1.2 million.   

Based on some educated guesses, I think the after-tax profit on this development was probably $700,000* or 18% margin (profit/cost).

Developers are usually looking for 20% margin on a project like this but will often accept 15%. (NB. I have assumed GST was paid on both sides of the duplex but the fact one dwelling sold over a year after the other suggests a different tax outcome might have occurred).

Imagine if you could get a similar outcome but live in one side and sell the other. If the cost of the development is $4 million and you sell one property for $2.4 million so the other one effectively cost $1.6 million (before you pay tax on the first dwelling's sale).

In other words, your brand new home is worth at least $2.4 million but cost you $1.6 million plus tax.

Obviously, you need to consider your individual circumstances and find the right site, builder and advisers but it’s worth considering, right?

Flippable: Your Redevelopment Ally

Flippable wants to make it easier for homebuyers to develop duplexes and dual occupancies for themselves. We want to make the process as simple and risk-free as possible.

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*This is based on the following assumptions:

• The cost to build is $2.25 million. The cost might have been more than this as the end product looks amazing. See more on build costs in my upcoming post on build options.
• Over $175,000 for consultants, legal, project management and stamp duty on the original site acquisition. This figure might have been more or less depending, in particular, on whether project managers were needed and stamp duty rates at the time for the location concerned.
• There is a loan for the land acquisition and the development costs at a 70% LVR and an 8% p.a. rate. The rate for the land acquisition was probably less and the rate for development potentially more but it depends on the loan conditions, which will in turn depend on the borrower. I’ve assumed the land loan is in place for 2 years and, while the build takes 2 years, the debt is released in stages as construction progresses so I’ve assumed 1 year of interest on the total development costs
• Assume an equity contribution from the developer of $1.5M and include an opportunity cost of 15% on this contribution calculated over one year because the equity contribution would be made later in the development given its higher cost.
• Selling fees at 2.5% of the sale price.
• GST at $400,000 under the margin scheme

Some of these assumptions would likely change if you develop as the home buyer. For example, the LVR and interest rates would likely be different. You might choose to give your project manager a share of the profit to incentive them to keep the project on track. Or perhaps construction costs run 10% over and eat up your contingency.