How To Profit From Subdivision

by | Mar 27, 2017

If you’ve been investing for any length of time you likely will have heard that property investing “takes time” and that you should exercise patience while waiting for capital growth to increase your wealth.

Although this is true, it’s only partly true.

Yes, it does take time to make money investing in houses, but you can dramatically reduce that time by forcing value on your investment.

One of my favourite ways to do this is through subdivision.

Subdivision is a fantastic way to make money and while it does take a bit more effort than other strategies, the gains you can achieve are well worth the effort.

To illustrate the benefits of forcing value through subdivision let me share a story with you.

Recently, my dad wanted to get a better return on his investment than the 3.75% offered by his bank, so he rang me for my advice.

As you might suspect, I suggested investing in houses as a means to increase his returns.  I recommended that he purchase a property which he could subdivide and quickly realise a great return.

So he did just that.
I helped him find the perfect deal in Mudgee, New South Wales; a two-bedroom, six unit development for $740,000 ($123,000 per unit) which had not been strata titled.

subdivision

Subdivision Types

Strata subdivision

After strata is completed and all costs accounted for, the price per unit is projected to be about $230,000 each – an increase of $107,000 per unit!

That means he will gain about half a million in added value! Much better (and faster) than any gains on 3.75% interest, wouldn’t you say?

Needless to say my father is thrilled with the outcome of his investment.

While this is fantastic, you don’t have to strata title a development to make money through subdivision. Simply splitting an oversized lot can yield a great return!

Just ask my mum.

Block subdivision

My mum also wanted my advice, but she was planning to sell.

Her home in Gladesville in Sydney was becoming unaffordable, and as she was nearing retirement she planned to use the proceeds to fund her lifestyle.

I told her I’d be happy to help her sell, but when I took a closer look at her property which was situated on a 1012 square meter block, I realised we could do something much better.

Her lot had been considered a standard size when she purchased it 30 years ago, however by today’s standards, it was quite large.

Checking with local council we discovered that the minimum block size was 500 square meters.

As my mum’s house was in the back corner of the block we were able to split the lot, create two separate titles and then sell the vacant half for $1.1 million dollars!

Now, rather than uprooting herself, my mum can stay in her long time home and fund her retirement!

I am very pleased that my folks were able to achieve such great results from their ventures, but I don’t want you to think that this strategy only works with large sums of money.

Because it doesn’t.

I have seen it applied across a wide spectrum of price ranges and in a varied number of markets.

The other types of subdivision include:

Granny flat addition

Availability depends upon location.

Second property

This involves building a structure on land which you have split and then either renting out or selling the property.

Raw land

This strategy is both time and capital intensive. It  requires splitting the land legally and physically.

The type of subdivision you choose will depend upon the physical characteristics of the property, it’s location and the desires of the local demographic.

strata subdivision

How To Get Started

What to Look For

Ask yourself the following questions to quickly spot an opportunity to force value through subdivision:

  • Are there other subdivided properties in the area?
  • Would residents choose your potential development?
  • Is there a low supply/high demand situation?

 

What To Do

  • Review local council’s Development Control Plan to check for:
    • Minimum lot sizes
    • Setback line locations
    • Easement locations
    • Building restrictions on location and size
    • Zoning issues
    • Access issues
  • Choose corner lots or battle axe blocks for easiest development.
  • Run a feasibility analysis before committing yourself to the project.

The following considerations comprise just a small portion of issues that will need to be addressed when planning a subdivision:

  • Council contributions/requirements
  • Extra power and connection costs
  • Required amenities (e.g. off-street parking/sidewalk, etc)
  • Tree removal
  • Contamination concerns

 

Once you’ve found a prospective property to subdivide and have done all of your due diligence it’s time to prepare your development application.

This is one of those property investing situations where you’ll need the help of an experienced team of professionals:

  • Conveyancer
  • Counsel
  • Building designer
  • Urban planner
  • Surveyor
  • Engineer
  • Architect
  • Real Estate Agent

Prepare Your Development Application

Gather your skilled team and prepare your development application.

Here’s what you’ll need to do:

  • Provide a copy of the certificate of title
  • Give detailed layouts of the existing property both before and after proposed changes
  • Meet with your team before the application is lodged
  • Get a timeline of the process from council – be persistent if they are unclear, asking “in most cases, how long will it take to get a planning permit?”

Tip: Informing your neighbours about what’s going on could prove beneficial to relations in the future.

Before Lodging The DA

Before lodging the application, schedule a meeting with the council. Bring your urban planner with you if possible.

Hopefully, by this point you will have established a rapport with at least one of the council members – a move which may prove helpful in your discussions.

At the meeting, discuss the plans you have in place to see if they comply with the council’s guidelines. (If you’ve done your research well, this shouldn’t be an issue)

Finally, remain open to any suggestions council members may have. As they very likely may reside in the area, they have a vested interest in the outcome, so consider your actions accordingly.

 

If you want to meet with like-minded people sharing the same interest for property investment,  you should register to attend our next Property Investor Night.
At these FREE events held all across the country we discuss where the growth markets are right now, and share ways you can navigate your way to financial freedom through investing in property.

Seats fill up fast, so book yours now!

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