WA First time subdividing - which suburbs on a budget?

Discussion in 'Where to Buy' started by PerthieNewbie, 19th Jul, 2018.

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Which suburb would be the best option to start my property development journey?

  1. Beechboro

    7.1%
  2. Lockridge

    14.3%
  3. Forrestfield

    28.6%
  4. Thornlie

    28.6%
  5. Spearwood

    0 vote(s)
    0.0%
  6. Hamilton Hill

    21.4%
  1. PerthieNewbie

    PerthieNewbie Active Member

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    Hi everyone,

    I've recently discovered this forum while research and really appreciate all the advice and tips I've read thus far, so thank you! :)

    It will be my first home/investment but I'm still early in my career and not earning much right now ($55,000). I went to a bank for advice and my maximum borrowing capacity is $300,000.

    What are some suburbs I can invest in an old house on a subdividable block? And what sort of restrictions do city councils have, which are easiest to deal with (if anyone knows)?

    I've been looking/researching at the below suburbs, which would be the best option do you think?

    - Lockridge (stigma, lower socio, close to city, high dual zoning but I read somewhere they have restrictions on frontage and land size?)

    -Beechboro

    - Gosnells (further from city, I read that they have POS and infrastructure contributions which I'm not too keen on)

    - Forrestfield (new train station being built)

    - Thornlie

    - Spearwood

    - Hamilton Hill

    ...or if anyone has any other suggestions?

    Thanks! :)
     
  2. thatbum

    thatbum Well-Known Member

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    So does that mean your budget isn't more than $300k or so? That really limits you and pretty much rules out nearly all of your list I'd say.
     
  3. PerthieNewbie

    PerthieNewbie Active Member

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    Thanks for your reply @thatbum, I saw a few in the low 200's in Gosnells, higher 280's in Lockridge, and around low 300's in Thornlie!
     
  4. thatbum

    thatbum Well-Known Member

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    Fair enough, but why worry about what suburbs to focus on when really you're so limited in your options?

    You're better off using the same time to just assess each potential purchase as it comes!

    Why the focus on subdivisible properties btw? I often recommend against it for beginners since its often just a further complication and risk of buying something overpriced or not suitable for development.
     
    PerthieNewbie likes this.
  5. Sackie

    Sackie Well-Known Member

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    With an income of 55k and a max borrowing of 300k, good luck with it. No offence but I think this is a case of first walk before you try to fly.

    Finance is only one part of it. You know how to do the feasibilities? You have extra money for contingencies? Personally I think its waay over your acceptable risk profile atm.

    Wish you the best though.
     
  6. PerthieNewbie

    PerthieNewbie Active Member

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    Thanks :) I've done preliminary feasibility on a few properties i'm interested in, but with more research i'm finding out there's extra costs etc like POS and infrasture in Gosnells...sort of want to use this opportunity as a learning experience and any profit to put into my next project.

    I'm still living at home, so holding costs will be low as I would like to rent out the existing house for just under a year before I move in (under FHOG), and then also I can get 50% discount on capital gains tax.
     
  7. PerthieNewbie

    PerthieNewbie Active Member

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    True, good idea :) just researching other suburbs i'll have more options to choose from :p

    I feel like it has less risk as my first project as there is still the value of the house which I could use as an IP in the meantime until I'm ready to go ahead with subdividing! I just like the potential it has...rather than just buying a first house with no potential at all...

    I've been doing a little competitive market analysis just on realestate.com.au in those areas especially what has been recently sold and whats on the market to help me understand what would be a reasonable offer :D
     
  8. thatbum

    thatbum Well-Known Member

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    Glad to hear you've been doing a fair bit of research into subdividing then. How well do you know the Rcodes and stuff on that so far?

    I have to disagree about it being less risk - I feel like its upping the ante considerably if you're buying a potential development site because its factored into the price 99.99% of the time. And if you aren't able to realise the additional potential fully, then its often just an expensive dud property!
     
  9. PerthieNewbie

    PerthieNewbie Active Member

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    Pretty familiar with Rcodes now, although I just recently discovered that city of swan has the restrictions on land size for more than 2 lots :( What else would you suggest I look out for?

    Yeah, that's why I'm focusing on the cheaper areas for now since it's my first starting project :D I'm living at home now, so worse case I can always just rent it out for a bit while I figure things out!
     
  10. Connor

    Connor Well-Known Member

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    Hi @propertynewbie

    Mate, keep learning, researching and pumping out those feso's.
    Rather thank wishing you luck, I'll make a few suggestions that may help.

    The most important factors to consider are location, entry costs, development costs and end values. If these don't stack up move on. Never rely on a market rising to see a profit. Profit margin needs to be in the deal from day 1.

    - earning 55k and living at home is great! Save like crazy!!
    - forget about moving into a property you buy, you'll need the rental income to help you increase borrowong capacity.
    - look at properties where you are able to retain the existing house and build behind.
    - lending is tight ATM, so you might not be able to subdivide/build straight away. Also, when applying for finance to build, make sure you include the proposed rental income for the new build to again further increase borrowong capacity.
    - again, don't forget to save!!! You'll need cash for soft costs like permits etc.

    Location wise, you'll need to look at regional centres rather than capitals. But in the 300k range youll definitely find potentially profitable deals.

    Take your time learning, and don't rush in. Developing/sub dividing can be quite complex, so study it thoroughly.
     
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  11. thatbum

    thatbum Well-Known Member

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    I'm impressed! After the Rcodes, then you also need to read the local planning schemes for the council area since they can sometimes modify or add to the rules for subdivision and development in the area.

    I just think its so important to get your first purchase right, especially if you don't have access to a higher income or a sizeable equity/deposit.

    And aiming for something subdivisable and feasible in a lower price bracket is very hard btw - as a general rule, the lower the price bracket, the more competition you have and so the harder it is to find something worthwhile.

    So it might be worth just aiming for something with good growth and cashflow prospects that you can pick up perhaps under market value - that's a lot of boxes you can tick there without necessarily needing to go a development site.
     
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  12. Perthguy

    Perthguy Well-Known Member

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    ?

    Could you please explain this? What restrictions on lot size?

    For subdivisions, DC 2.2

    For strata and survey strata DC 1.3

    Local Planning strategies and Local Planning Schemes. Local Planning policies.

    For example, City of Belmont has a split R20/40 code with special requirements to get the higher code.

    City of Canning has a special scheme for parts of Queens Park that makes it really expensive to subdivide.

    There are lots of quirks between councils but keep in mind that WAPC approves all survey strata and subdivisions.
     
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  13. Sackie

    Sackie Well-Known Member

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    I commend your efforts and you're obviously doing your research. I will say though that the above reason you have for wanting to do a development is really not worth it though, especially when you consider the risks. Right from the start you need to be confident with the profitability in the feasibility with a worthwhile margin, otherwise its silly to get tied up into a dev.

    I agree with thatbum that its probably better to choose a BMV deal with good cashflow and or growth prospects to build your asset base. A lot of people get caught up with the fantasy of doing a development. But at the end of the day the numbers really need to make sense at the time of the feaso, otherwise its crazy to go into one hoping to make money or using it as a learning experience, imho.
     
  14. Scott Townsend

    Scott Townsend Well-Known Member

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    @PerthieNewbie good work on doing the research and getting an understanding of R-Codes and council requirements. Keep at it!

    Very rarely do people go for a development as their first investment but IMO it doesn’t mean you can’t - it’s just a bit more risky. This forum is a gold mine for information on everything property. Ask questions, find a mentor, somebody who has done it before that’s willing to offer you information and advise. Missing a minor detail in a local planning scheme could land you with an absolute lemon of a property and take you years to recover from.

    For me if I was starting out again I’d probably be trying to pick up a bargain well under market value that somebody is desperate to sell that perhaps needs cosmetic work. Get in there and do a small low cost renovation and get it rented - preferably with a neutral/positive cash flow and achieve some equity.

    In saying that there are still development sites out there for around the $300k mark. My current project in Swan View was $305k then factoring in stamp duty, sub div costs, demolition, holding costs (interest) and selling agent costs will be a total of about $370-$380k. Aiming for $240-$250k per block. This is getting split into 2 side by side street fronts opposite a large park in walking distance to shops and public transport. You will generally need cash for the sub div costs though so as some of the other guys have said - keep saving!

    Get in touch with an investment savvy broker to guide you to where you need to be finance wise - you might even want to hold off until you get a pay increase to secure yourself something in more desirable locations.

    Had you thought about going in with somebody? Family member or good friend? I did my first with a friend. 2x$300k BC is better than one! If you had $500k purchase price to work with it opens up a lot of good areas where 15-20% is achievable. Yeah you have to split the profits but do a couple of these and then go your separate ways? Just an idea :)
     
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  15. JohnPropChat

    JohnPropChat Well-Known Member

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    Keep up with the research. It's a buyers market. I wouldn't rush in just yet. If it takes 6 months to a year so be it. In the meanwhile your income might get a bump as well. Nothing wrong with holding onto a subdividable block without you doing it yourself. When the market turns, your property will have a selling feature. During the time you live in it, you can do a minor renno, which will also be a plus when it's time to sell.

    If you move into it, stay for 6 months to a year to satisfy your FHOB obligations and rent it out again. You can make use of 6 year main residence exemption to pay less CG as it'll be apportioned.
     
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  16. PerthieNewbie

    PerthieNewbie Active Member

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    Thanks for the advice! :)
     
  17. PerthieNewbie

    PerthieNewbie Active Member

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    Thanks @Perthguy

    I'm trying to research which councils have those quirks which makes it harder/limits a subdivision, so thanks for the head up for those councils.

    For City of Swan, even if a zoning is r20/50, if you want to subdivide more than 2 lots you will need either 25m frontage or 1300sqm lot size.

    For City of Belmont, a real estate agent mentioned that you need to make the street frontage all pretty if you retain and build?
     
    Perthguy likes this.
  18. PerthieNewbie

    PerthieNewbie Active Member

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    Thanks for the advice @Scott Townsend! Did you have a any recommendations on a good investment savvy broker? :)
     
  19. Perthguy

    Perthguy Well-Known Member

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    Any split code will have specific requirements. Split codes look like R20/40.

    I only know about the Canning special scheme because my mate subdivided there and got slugged a motza. I am pretty sure Gosnells has something as well. Then there are structure plan areas where there could be more contributions required. I know there are some in Forrestfield/High Wycombe but I forget what is required. It is years since I looked at any.
     
  20. PerthieNewbie

    PerthieNewbie Active Member

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    eep! I read with city of Gosnells they are taxing developers in ODP areas (i think in maddington only, have to double check) on POS and infrasture which adds up to be quite a bit so not sure I would want to subdivide in Gosnells unless its a bargain...

    The infrastructure contribution rates -

    R20 coded land - $222,769/ha (or $22.28/m2) R30 coded land - $334,153/ha (or $33.41/m2) R40 coded land - $445,538/ha (or $44.55/m2) R80 coded land - $891,076/ha (or $89.11/m2)

    The public open space (POS) contribution rates -

    R20 coded land - $160,596/ha (or $15.90/m2) R30 coded land - $240,894/ha (or $24.09/m2) R40 coded land - $321,192/ha (or $32.12/m2) R80 coded land - $642,384/ha (or $64.24/m2)

    Something I'll def be taking into consideration when choosing my first project area!
     
    Perthguy likes this.

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