JULY 27, 2018

Is it worth sub-dividing your land?

Subdivision has been the Holy Grail of inner-city development over the past decade or two; seemingly everywhere you look, there are older homes on quarter-acre blocks being demolished to make way for collections of compact townhouses.

As the old saying goes, they’re not making any more land, and in our big cities this scarcity is helping drive high profits for savvy developers.

If your home is on a large block, chances are you’ve thought about sub-dividing it to make some extra cash – but how viable is this strategy in today’s market?

The basics of subdividing

One critical factor to consider is the block itself. How is it affected by council zoning? Is the backyard so steep that developing it wouldn’t be cost-effective, and what about drainage?

You’ll need around 700m2 of usable land (a minimum of 650m2), along with space for a driveway at least 2.5m wide, to make sub-division feasible. It’s best to let the experts weigh in on these types of questions, so contacting a town planner or engineer is your first port of call.

Once you’ve established that your property is suitable for sub-division, it’s time to nail down your strategy.

Are you planning on keeping the original dwelling as it is or knock it down altogether? And what will you do with the property (or properties) when they’re completed… sell one and live in the other? Rent them both out? These are all important things to figure out long before you start digging foundations.

Experienced developers have this down pat and buy properties with all these factors in mind, but if you’re a mum-and-dad novice it’s best to seek professional guidance here.

Don’t forget to speak to your accountant about the tax implications as well – these could erode your potential profits if you don’t get your ducks in a row.

Are sub-divided properties in demand in your suburb?

A crucial thing to consider is demand for sub-divided properties.

If you live in the catchment zone for a sought-after school, knocking up a three-bedroom home big enough for a family in your backyard could be a winner, while in suburbs close to the CBD or near universities, a group of smaller townhouses suitable for singles and students might be more lucrative.

As well as the project’s suitability in your neighbourhood, other things you need to consider are:

Red tape – the approval process can be time consuming and frustrating, and the money you’ll spend on a top-notch draftsman could save you a lot of back-and-forth with the council if you get the plans and proposal right first time. If you have friends or family who’ve dealt with your local council previously, hit them up for their tips, or even better, see if they have a contact on the inside who can help you through it all.

Budget – Of course, you’ll need to set a budget, and be careful not to over-capitalise on the project. Have a look at similar sub-divisions in your area – what are the finished products selling for, and how are the original properties holding their value now they don’t have a big backyard as a selling point?

Profit – What sort of profit or weekly rental income can you expect once your build is complete, and how does it compare to what you’re spending on the subdivision itself? Be careful not to over-estimate the potential sale or rental price, as this could leave yourself out of pocket if the market dips. Instead, it’s best to have a modest target in mind, while also budgeting for extra, unexpected costs.

If you’re strategic and smart, sub-dividing your land can be a great way to build your wealth or create an extra income stream. Just be sure to do plenty of research and keep your expectations realistic, to avoid disappointment.

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