battle-axe question

Looking at my first development soon, here are the rough details:

Older house with subdivision potential and renovation need.
Live in and Reno front house, split the back and build a simple 3x2 on it.

When we go to revalue the front house, or sell it, because the block is now half the size does this impact the potential price much? Compared to if we were to just do a simple flip and sell? Im 90% sure the answer is obvious, but is it impacted that much?

if it helps potential house is going to be in the thornlie/maddington area Perth

 

Surprisingly the value doesn't always go down much but it really does depend on if the site is purchased at land value or at a premium for it's development potential.

The renovation of the front house should put it in good stead to being worth more BUT you need to go study all the recently sold houses in the area that have been subdivided to see how this works in your area. View them all online, see what they did for renovation (major, minor, cosmetic), how much land component they ended up having, how big the house is (sqm is useful for comparing) and then assign a same/superior/inferior label for location. That will help you suss out what your end value might be to use in your feaso.

 

@Westminster
excellent, thanks again westminster!

 

What do you mean by "flip and sell"?

As in you're wondering whether its worth building on the back?

 

I have done a few hammerheads,and although i did make a profit, the buying market pool is very limited,in the areas i worked with anyway.Naracoorte,Mount Barker,Murray Bridge & Strathalbyn.

 

Another option would be demolish and split straight down the middle.

 

i went and had a look at the potential site today, house next door has done the exact same thing, reno front, split back, build, sell. They sold the new rear for $375,000 about 3 months ago. seems it sold fairly easily as it was pulled off the market before the first home open.

The house im looking at is up for $230,000 723SQM zoned R20/30 (needs fairly extensive renos) we would live in it while we reno.
I am in the building industry so i could probably strike a deal with dale alcock or BGC seeing as we are major contractors to them. I Also know so many trades that would help us out.

@thatbum Im just going through feaso at the moment, i was just seeing what other peoples experiences were with revaluing, or selling the original house after it has had the back half split off (if it affects the price negatively) But @Westminster has answered that.

@Chomp the house seems too structurally sound to warrant a demo, plus we need somewhere to live while we build the back haha.

Doing it this way in my opinion is best. When we sell the front renod house, we will not pay CGT (as we will be living in it) then we can rent the newly built back out for a few years whilst doing other projects (done some research and new battle axes in the area are renting for about $380pw, which would make this a net positive cash flow after P&I payments) and claiming depreciation on the new build. Then move into the new build sell that and not pay CGT again.

Thoughts?

 

I don't think you can as you used it to produce income from day 1 of ownership.

 

I'm a bit confused between the different options here. I've offered a retain and subdivide project recently myself and gone through doing feasos on the different scenarios.

My advice is to start with the real basic numbers and ignore all tax implications first. Then when you think you have maybe your top couple of scenarios, add things like tax calculations if they are particularly close.

 

You'll need to pay CGT on the rear build from the time it is split off from the front house to when you sell it. If you move back into it, it is only CGT for that amount of time you are living in it.

Especially if you are trying to claim other projects are CGT free when you are living in them/renovating them. Only one PPOR at a time.

 

And PS don't forget GST.

 

Ah right I didn’t think of the fact it wouldn’t be cgt exempt after being first used as an IP. so maybe better to just sell it new.
yeah I remembered gst.

I think I’ll leave the tax stuff to @Ross Forrester when that time comes haha.

 

I have done a couple, it takes around 9 months to get the title. So do the reno within that time frame, make sure the street frontage and landscaping is on point, so you get maximum for the rear block.
Sell the rear block vacant, rinse and repeat.
I didn't think the profit was worth it for waiting and doing the build on the rear block in the market I was in at the time, set your self up a spreadsheet and go from there.

 

[QUOTE="Chomp
I didn't think the profit was worth it for waiting and doing the build on the rear block in the market I was in at the time, set your self up a spreadsheet and go from there.[/QUOTE]

This is what im thinking too, building on the back and selling that, compared to selling a vacant block, the extra profits are minimal, and for a lot more work i guess.

 

This is what im thinking too, building on the back and selling that, compared to selling a vacant block, the extra profits are minimal, and for a lot more work i guess.[/QUOTE]

I agree sometimes it's not extra money however do consider that some people are unable to imagine what can fit on rear blocks so they may take longer to sell. If you do try and sell vacant see if you can get one of the big building mobs to put an indicative/possible house plan on it so they can see the potential.

 

CGT and GST.

Maybe your executor will pay the CGT and the GST? That way you will never pay it.

 

Is CGT and/or GST applicable if I didn’t build on the land and sold the block only

 

Yes I believe the creation of vacant land also has GST on it. Possibly might not be CGT but rather income tax as it would be an enterprise not an investment