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Buying a subdivided property

Discussion in 'Where to Buy' started by tone1, 23rd Oct, 2015.

  1. tone1

    tone1 Active Member

    Joined:
    24th Jun, 2015
    Posts:
    34
    Location:
    Melbourne
    What are people's thoughts on buying a subdivided property from a general capital growth perspective? Houses on full blocks in this particular area of Melbourne have become relatively unaffordable as the suburb has become more desirable ($800,000+ for a run down house), but subdivided blocks remain at a good entry-level price at the moment (up to $600,000 for renovated or larger house). The existing blocks in this area are generally large, so a lot of subdivision has already taken place, mostly when the full blocks were more affordable to buy, but that is no longer the case. Cashed-up investors who can afford to buy the full blocks now are doing so with run-down houses to knock them down.

    The particular property I'm interested in is the original street-facing property, with a new unit at the rear.

    I am concerned about the capital growth potential of a subdivided property, but I can see that as the full blocks go higher in price and become much rarer, the subdivided properties are going to follow as the only way a large portion of buyers will be able to afford to buy in the suburb.

    Hope I've pained enough of a picture of the stage that this suburb is at. Any tips on how to pick a good subdivided property from a bad one are appreciated as well.

    Strategy is to buy and hold, renovate (and rely on capital growth) to increase equity for next purchase.
     
  2. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,334
    Location:
    Perth, Melbourne, USA
    Its dependent on the area, and demand for this product.

    Homework, homework, homework.

    Check comparable sales.

    Ask agents lots of questions ie who is buying this product, how quickly does this product sell etc etc.

    I generally would not consider buying something like this unless it was a trendy sort after area, where land is at a premium price.

    What I have noticed with this product is if you buy in lower end areas/suburbs it can be a tough gig because buyers want new homes. Unless the original house has been renovated to a high stand it will be difficult to sell and façade/elevation is critical, otherwise its a turn off.

    Sounds like your scenario is higher end and it may work, what area??so then it comes down to the numbers, costs to renovate including holding costs, then work out your profit.

    Most important factor is make sure you are not buying at peak????

    MTR:)
     
  3. tone1

    tone1 Active Member

    Joined:
    24th Jun, 2015
    Posts:
    34
    Location:
    Melbourne
    It's a difficult decision because my research is not really turning up the answers I want to make this a sure-bet. I've never really considered a subdivided property before.

    If I buy this property for the price I think it is currently worth (based on comparable sales), it will have only made $150,000 or so in 6 years (pure capital growth as the current owners have not touched it since they purchased). That's not great for Melbourne, but again it could be an indication that I am getting in at the right time. I wouldn't call this suburb particularly trendy, but it is adjacent to sought-after areas, the location is really quite good with everything I look for in close proximity (public transport, shops, good schools), it's located in the best pocket of the suburb, I've at least decided the fundamentals of the location are good and a ripple effect might be what shoots up the prices. It's the type of property which has me hesitating.

    The house is a post-war period style house, quite unique for houses of that time, the facade is the best thing about the property and really sets it apart. That's a big tick for me. The townhouses/subdivided properties here are all quite high-end in terms of fixtures when they have been renovated, so I'm going to need to invest the same amount to update the kitchen/bathrooms to match the suburb-standard.

    In terms of getting in at a peak, well, that could be the case. Right now, I don't think there's a huge demand for this type of property, but I think that might be because it lacks the high-end renovations of other subdivided properties in the area, and I can correct that.
     
    Last edited: 23rd Oct, 2015
  4. Otie

    Otie Well-Known Member

    Joined:
    26th Mar, 2016
    Posts:
    289
    Location:
    Vic
    Hi
    Did you end up buying it @tone1 ?
    I'm considering a similar purchase- what did your research turn up?