Adelaide splitter blocks

I'm attempting to purchase project number 3 and have decided to take the lazy option (compared to retain/renovate and subdivide) by finding a site within a 10km radius of the Adelaide CBD to the West- Sth suburbs (why- because I live this side of town and know the areas well), the plan is to just bulldoze a house and sell off 2 vacant blocks of land as quick as possible to take cash profit.

I'm not sure why my focus has shifted from retain front house/renovate and subdivide off the back yard, I did have success with the last one, but I just can't find my mojo to face another renovation, and properties that are suitable for retaining the front house are few and far between with competition for them fierce when they do come up.

So anyway this is the plan, feel free to pick holes in it, and I'd love to hear other examples of projects from people doing the same in Adelaide.

$450k purchase price
$30k for stamp duty, conveyance, title transfer fees, loan set up fess, any other fees at settlement
$30k for all subdivision costs inc. soil testing + engineered plans for private certification & approval
$10k demolition fees
$30k holding costs (assuming untenanted for the entire 12months it will take to achieve- this is from settlement of the house to onsale and settlement of the new lots).

$550k Total outlay

$620,000 combined end value ($310k each lot resale, no selling fees as I plan to market as a H&L package with a builder here in Adl, who I've done this with previously)

So $70,000 is the capital gain, which is then reduced by my marginal income tax rate applied at tax return time (no CGT discount- this is type of action will be deemed a business like/profit making- so full tax rate applies). My home cash will be about $45k.

Problems I can see arising:
1. actually managing to buy a site for $450k with land values that resell at $310k - I've been making bids and offers but keep missing out.
2. must be confident of your resale values, backed up by good hard evidence, which is surprisingly hard to get up to date and accurate land sale values, because 6mth settlements are quite common, so by the time sale prices come online the actual transaction can be quite old.
3. must be very confident that the market won't drop during your 12 mths hold- a slight change in market could see your capital gain obliterated, and you can't just tenant the house and wait since it'll be bulldozed.

So overall a higher risk strategy, but even with all of the above it still appeals to me because no hands on work is required.

One thing to note for newby's reading here, a lot of equity needs to be committed for this type of project (more than just a retain and renovate site) because the bank will only lend 80% of land value only.

So assuming I buy a site for $450k but the bank determines land value only is actually as low as $400k (so max lend will be $320k) the total equity invested will look like this:
$130k deposit + $30k stamp + $30k subdiv + $30k hold + $10k demolish = $230k total

 

What suburbs are you thinking of?

I looked into this for a long time but just don't see much profit if any left in it.

Like you said you keep missing out as people pay more than what it is worth to you to subdivide it and make profit.

I have found in some cases builders are buying these types of blocks so they can create themselves work/a wage. That's why they can buy them for more than you and still make money off it.

Not saying you won't find one will just be hard in Adelaide market. If it was easy everyone would do it hey

 

you could buy cheaper and reduce your risk.This

Proposed lot 3 16 William Street Christies Beach SA 5165 - Residential Land for Sale #201272837 - realestate.com.au

is on the other corner from where i have just bought this

Sold Price for 1 William Road Christies Beach SA 5165

I bought in for $310k.The interesting thing is the 3 blocks for sale still has the home on it.Selling one to finance the division.Clever.

 

And,you may get more than 2 blocks in your strategy using the examples above.

 

This is true, you can go further out away from the city and reduce risk. Does William Rd have sea views Jim (7 William is on our rent roll, but can't remember), the advantage of Christies is the sea views on many of the streets as well as the development potential as well as the lower entry price.

 

At no 16 yes i believe they would,the add says Building site with potential for views from 2 storey home (STCC) (242m sq) so they have been upfront,need a townhouse or 2 story home.

 

I absolutely agree Johnny, they keep selling at price points where there is no profit to be made for me. Either builders are buying them- and can add profit in the construction phase or purchasers are confident a lift in land values is going to occur during the next 12 mths- I'm a conservative investor so don't add in any potential capital gain- I just work on current land values.

Suburbs I'm trying to buy in:
Morphettville, Plympton Park, South Plympton, North Plympton, Netley, Brooklyn Park, Richmond, Kidman Park, Flinders Park etc.

 

@jim1964 Can you recommend a good surveyor and/or town planner in Adelaide? Much appreciated.

 

Have used Scott on a few projects now.No hassles and well priced.


Scott Bacchus

Licensed Surveyor

SKS Surveys

Mob: 0418 673 705

Email: [email protected]

 

Thanks @jim1964 ! I'm looking at doing my first development and wanted to ask your advice. I'd like to either buy some land (preferably a corner block although I know they are more expensive) and do a subdivision and then sell the land without building. What do you think is the best approach for someone who is just starting out? And what suburbs do you like for doing subdivisions in Adelaide? I'd like to keep it simple if possible and minimize risk.

 

It all comes down to your own risk profile.I have sub divided land in what would now be classed risky and made good money.Personally i like the coastal properties now,like Christies etc,its where people like to live.Remember all the infrastructure costs are the same,SA Water,SA Power etc so choose the area carefully, and be ready to put your money where your mouth is.

 

Thanks Jim. I'm leaning towards coastal properties too, Christies Beach looks really good and the prices reasonable for my budget. What are the kind of questions I should be asking before I buy? Do you consult a surveyor before you buy or is it enough to call council and ask them about what can be done with the land? It seems I need to move quickly as good properties go very quickly.

 

Which of you use a private certifier and any of you willing to share your experiences (time, cost, expertise, tasks done etc) ?

 

Yes &Yes

 

Prices in Mt Barker really seem to have gone up. Do you think Christie's Beach is better value? Trying to get my foot in the door for a splitter block. My price range is low 3s and below.

 

I bought in Mount Barker for $275k,a lucky buy as i accidentally stumbled across it, Christies cost $310k, so they are there in your bracket.I would think Christies would be more popular,as an investor,you get more blocks under the DA plan,but each to their own.

 

Sounds good. I'm leaning towards Christie's because of proximity to the beach and more blocks under the DA plan sounds even better. What are you planning to do with your block there?

 

Undecided.I may do a JV,there is something on the table,see where it goes.

 

Always good to have options. For my first go, I want to keep it to a simple subdivision and sell the land. I think the profit's in the subdivision not necessarily the build unless you build more than 2 dwellings and, of course, that takes more cash.

 

The moneys in the dirt,You have the right idea.Well done!!