New Real Estate venture! Will it work? (Developers Only)

I was at council this morning and noted that many of the land subdivisions resulted in odd shaped residue lots which cant be built on and are a drain on the developer/subdivider of the original parcel.

I wonder whether setting up a company to buy all these "useless" parcels of land and hold until neighbours required them to carry out their subdivision would be a worth while investment venture.

pros:
Land would be purchased at 40% of developed cost, so plenty of upside regarding price.
Neighbours cannot develop their land without acquiring your residue lot.

cons,
No income stream possible until sold.
All outgoings still payable and not tax deductible until sale of land.
Land could be held indefinitely, as the reason it is residue is that neighbours refused to joint venture or sell their land.
Neighbours could prey on the fact that you only have one purchaser and beat you down on sale price.

What do you land bankers, creators of subdivisions and developers think?

 

Surely there might be some income possible?

Maybe approval could be gotten for setting up a community garden? What about renting the sites out for beekeeping?

Perhaps you could get approval to build large sheds on the lots, then have the company lease them to you personally. You have a few cars that need secure storage by the sound of it?

 

I don't often see such lots. Is this an Eastern states thing? I don't think I've ever seen it here.

For context I've done a structure plan encompassing 12 large land holdings and subdivision for 8 of them and no residue lots. Every single mm is used.

 

Like @Westminster notes, I can't recall having seen any residue lots in new developments. However I have seen plenty of "grudge strips" which have been dedicated to councils. A grudge strip being a slither of land abutting the main property but separating it from the main road. The reason for these grudge strips is to prevent the land owner having direct access (or possibly dual street access), this then prevents subdivision with street access.

In the inner city, there are many disused dunny lanes and remnants/residue lots which have been created upon conversion of the adjoining land to Torrens Title from Old Systems. These residue lots are what was left over when the ownership of these sections could not be determined and are in the care of the council. The council has a record of land that it owns and whether it is operational or community land (they cannot sell community land without a planning proposal, ministerial consent etc) - operational land is a different story.

Even when considering selling off dunny lanes etc to adjoining neighbours, unless the zoning is R4 or provides some great benefit, the areas involved (parcel size is usually very small) result in low value transactions.

 

No these are generally between 1,000 and 3,000 metres and too shallow to build. As less than 15 metres deep. It is only in greenfield subdivisions in Sydney. A new law has been introduced knocking back subdivisions that cause grudge strips. So the land must be purchased.

 

Oh! I think I might know what @Car tart means. Sometimes within a structure plan if a not so decent town planner/urban planner does it and doesn't create boundaries or roads where titles/ownership changes there can be blocks which can't be accessed until the next land owner puts in a side road or continues on the development.

Still I think this would be very rare. Simply because the way it's done here is that a structure plan creates the roads and the zonings but not the lots. Councils will heavily encourage the plan to work for all owners so that they can subdivide in their own time. Once the structure plan is approved then each owner will do their lot layout and actually subdivide and there should be no need for residual lots.

 

Do a title search on the lot, it would be interesting to see what encumbrances are on there. I think you'll find Council has already slapped a few restrictions to use or covenants on there from the subdivision of the parent lot. The few I have come across have these but you never know unless you check.

 

Assuming it's viable to purchase these.... I imagine you'd be very limited to the profit upside because they'll be a point where it won't be financially viable ( or enticing enough) for other owners to purchase from you at a price you need to make it worth your while and return on your investment.

 

It looks like it’s unanimous. Don’t do it!
That’s the same views as when;
I bought my first IP at 19 and had to take out two loans to fund 85%
Got married at 22, marriage lasted 29 years.
Had 4 children in 3 years.
Gave up being a real estate agent to concentrate on Strata.
semi retired at 45 and employed a manager to run the business.
Started buying low income producing greenfield properties waiting for the zoning to be changed.
Started up my high interest mortgages for developers looking to finish their subdivisions.
So the odds are definitely in my favour.
How do I know?
Because if others can only bring up the problems you expected, allowed for and have solutions for, then you know your decision is right.

 

I'm still trying to work out how these lots come about but I do have a new theory that you might be able to confirm. It's along the lines of a grudge lot.
A developer may subdivide and create a "balance of title" lot which could later on be developed for a staged development but more likely a developer has decided that he has no wish to provide infrastructure to the next land owner so stops his subdivision xx metres from the next owner and only if the next owner contributes to his infrastructure (water, power, sewer) then he will continue the services to the edge of the next owners land.
In WA there are developers who try it on and stop 60 or so metres from the next owner but the govt bodies are onto them and will allow the next owner to run the services and not pay the original owner a contribution for running them that far. It's messy but the outcome is that you should have agreements upfront if you want the additional owners to contribute for bringing the services in.

 

regardless if its possible or not, I like your thinking and thinking outside the square

 

Hi Tart

Could you post up an example of the residual lot in a development?

Cheers

 

If this is the case of new estates, I think waiting for the neighbour to be interested to the subdivision will be a long term game, profitable or not will depend on the timeframe which is a bit hard to nail. I would say make the "can`t build" change to "built" is the way to go.

 

Areas A & B are residue lots. These are two seperate subdivisions, each with two residual lots. Coincidentally they are neighbouring lots but do not think about that when working out the purpose of a residual lot. Think more of what happens with the b lots where the neighbour does not want to subdivide yet.

 

Wow I see what you mean now. That is some pretty poor urban planning with little regard for ownership/lot boundaries. The original lots are pretty skinny but they could have at least arranged roads to every second boundary

If you can get those lots at a heavy discount it might be worth it. Not easy though with all the holding costs and being beholden to the neighbours timeline.