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Optimum Suburbs for Subdivision: Beginning or end of Gentrification

Discussion in 'Where to Buy' started by Skilled_Migrant, 23rd Mar, 2016.

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In comparing two suburbs for the purpose of subdivision, which one would be preferable ?

  1. Suburb at end of gentrification

    1 vote(s)
    9.1%
  2. Suburb at start of gentrification

    10 vote(s)
    90.9%
  1. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Actually related to an existing thread, but in more general terms:
    VIC - IP#3

    Some points of differences
    • Suburb at the end of gentrification:
      • Low risk, low reward.
      • Higher cost of block.
      • Sub-divisible blocks difficult to find
      • Easy adoption of subdivision by local population and councils
    • Suburb at the beginning of gentrification:
      • High risk, High reward.
      • Lower cost of block.
      • Sub-divisible blocks easy to find
      • Difficult adoption of subdivision by local population (higher objections by neighbors) and councils
    I am leaning towards the latter, but need to hear more reasons and experiences.
     
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  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    At the beginning - lower cost, higher reward. Often unavailable towards the end. More choice at the beginning.
     
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  3. Connor

    Connor Well-Known Member

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    I'd definitely be leaning towards the lower cost option. Especially if you don't want to subdivide immediately. Reasons being that holding costs would be lower and there's a greater potential on hitting some growth at the start of gentrification.
    Obviously the risk would be that there is no or minimal growth, but if you've done your figures in the current market then you should be allowing for profit without any growth. Growth would be a bonus.
     
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  4. Pash81

    Pash81 Active Member

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    Sorry if this is a noob question, but what does it mean by "done your figures in the current market then you should be allowing for profit without any growth"?? What figures do we have to look at to make sure that there is profit even without any growth?
     
  5. Connor

    Connor Well-Known Member

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    That's ok, it means that you've worked out the entire cost of the project, so pretty much purchase price, planning/development approvals, construction costs, interest, sub div costs, council contributions ect.. And then seeing how much the profit (or loss) is when compared to the sale price of the project (usually townhouses) which you have estimated at current market prices.

    For the project to be worth doing, you'd have to project a decent profit in the current market conditions. Hence why any growth in the market and increased values is a bonus.

    Hope that makes sense.
     
  6. Lisa Parker- Buyers Agent

    Lisa Parker- Buyers Agent Well-Known Member Business Member

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    Either, providing it was profitable. I like the benefits of buying pre-gentrification, so long as you are buying where you know gentrification will be occurring, not just guessing. If you guess y could accidentally buy at the bottom of a market and take a long time to see any growth at all. If it's only a short while off being gentrified though your timing could be perfect because you will have two compiled products ready to sell or re-value at the height of the cycle in the area.
     
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  7. gach2

    gach2 Well-Known Member

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    What subdivision are you talking about?

    Buying extremely large land and dividing into 100 lots or 10 - 20 lots

    Or decent size block and dividing into 2/3?

    Or decent size block and constructing dual/multi occupancy and subdividing?

    Cannot answer about the first two but as for the last two scenarios I would say best time to buy is when the markets heating up for properties but just before it heats up for developers. Example would be where the demand for houses are increasing but not yet for townhouses hence the premium for sub dividable blocks are not really there when you buy

    Also if a new government legislation is coming out get it straight away as sometime people do not know about the rules (including sellers/ real estate agents) An example was last years Logan Planning Scheme in which few people on this forum knew but it took most real estate agents couple of months to understand that some of the properties were sub-dividable hence no premiums
     
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  8. MTR

    MTR Well-Known Member Premium Member

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    How long is a piece of string?
    Both can make money. There is no right or wrong, what is better may have very little to do with purchase price, but more about the actual deal, potential of the land, cost, location, what you can build, demand with regards to specific area

    Its about working out what the end values are, which is difficult if you don't have comparables, therefore you look at surrounding areas similar product.

    As you can see it's not straight forward but more about understanding what you can achieve and some luck will come into play
     
    Last edited: 23rd Mar, 2016
  9. Leo2413

    Leo2413 Well-Known Member Premium Member

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    For me the preferable one is the one which has the better set of numbers now and higher return on TDC as it stands today. Will also depend on my risk profile at the time of looking at the deal.
     
  10. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Snatched the post from my keyboard:). What are the signs of beginning of gentrification ? Some might be:
     
  11. TobyRichardson

    TobyRichardson Active Member

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    The latter would be my preference. Biggest thing to do if you're worried about neighbours objections is to have a very "standard" application with nothing new or unusual on it so that any objections will be considered to have no merit.

    Even better is if you are able to apply for a lower density development than what is actuall allowed and it will breeze through.
     
  12. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    What takes preference: Return on Investment or Return of Investment (Risk).

    How would you compare the risks when following exists:
    • The holding cost is much lower in the latter as the initial outlay is lesser.
    • Yields are expected to be higher in the latter if building in an existing backyard as gentrification has not taken place.
     
  13. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Agree, but the risk is if we lower the density and we might kill the deal. If building in the backyard, there is not too much of a scope to reduce density.
     
  14. TobyRichardson

    TobyRichardson Active Member

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    Where practical. If you can't afford the lower density push for higher, just expect it to be a bit slower.
     
  15. Leo2413

    Leo2413 Well-Known Member Premium Member

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    For me, it would be 'Return of Investment', ie return on Total Development Costs and not just ROE.

    With regards to comparing the risks of the above, I prefer to asses risk in this way, but I think it also encapsulates the two factors you mentioned above.

    I look at:

    1. DA risk
    2. Market Risk
    3. Feasibility/construction risk (ie cost blow outs)

    then make a decision.
     
  16. TMNT

    TMNT Well-Known Member

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    at the begining for gentrification by a mile for me,

    end of gentrification = no potential for growth except for normal cyclic trends

    start of gentriciton = multitudes of growth on top of normal cyclic trends


    no brainer!