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PPOR subdivide or not

Discussion in 'Development' started by Madhu, 20th Mar, 2016.

  1. Madhu

    Madhu Member

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    Hi All,
    Reading the forum for sometime and learning. Wealth of information.
    Currently have a dialemma whether to subdivide the property or not. Purchased in 2007. Hasn't performed particularly well compared to the recent market activity in Melbourne. Initially thinking of subdividing the block and build a townhouse 3x2x2 at the back and move to the townhouse and rent out the old house. My question whether to spend another 350,000 dollars or so in an under performing area or convert this into investment property and buy a PPOR somewhere. Also have an investment property which has done well.
    Any suggestions or opinions ?
    Thanks in advance
     
  2. ottg

    ottg Well-Known Member

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    It is purely a numbers game. Money is a "scares" resource. If the past performance of the area regarding capital growth and rental yield doeskin show then why invest further money there. There are surely many other opportunities available which numbers do stack up better!
     
  3. Madhu

    Madhu Member

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    Thanks @ottg for your reply
    I will research other areas.
     
  4. albanga

    albanga Well-Known Member

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    @Madhu can I ask where it is?
    Just because it has not performed well doesn't mean it wont but on the flip side could mean a very bad idea.
    I don't think anyone could give you any advice without knowing this first.
     
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  5. Madhu

    Madhu Member

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    @albanga It is in clayton south. I understand that it may perform better in the future, clayton has performed well, mainly because of developers paying closer to million for development sites. Properties closer to station I think performing well. I am thinking about the opportunity cost of investing somewhere else even if it is for PPOR.
     
  6. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Some considerations:
    • Can it be subdivided ? If yes, read on
    • IMHO active equity generation (subdividing) is less riskier than buy and hold strategy. Generates Capital growth when market is not doing it.In your case you are also spreading the risk over time as you will be selling the sub-divided properties at different times
    • By subdividing, you are unlocking the potential of land as that is pretty much free since you have been living on it for 9 years now. Better to build then mow the backyard.
    • You are living there, the sequence for you can be ( Subdivide, Build, Sell the existing property and keep the CGT exemption). @albanga has successfully used a slight variation to this procedure (Subdivide, sell and build), which frees up the equity tied up in the existing property for construction.
    • 350,000 is way too expensive for constructing a 3X2X2 if you are utilizing the backyard.
    • If you(or spouse) have spare time be adventurous and do an Owner build.:) Owner Builder Loans
     
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  7. MTR

    MTR Well-Known Member Premium Member

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    These are all really great points that need to be considered and $350K is definitely too high for construction costs.

    I would seriously be putting together the feaso/number on paper to determine how attractive this scenario would be.
    I would consider renovating the original house/property and strata the block, sell the original home and use the funds for the new build. I don't know the numbers of course but I expect it would be an attractive proposition in terms of cash flow because the land was purchased many years ago?


    Melb market, one needs to be careful this market has been running hot since 2013.
     
  8. Madhu

    Madhu Member

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    Thanks @Skilled_Migrant.
    Yes it can be subdivided.
    Original plan was to subdivide, build at the back move to the new build, and rent out the front house.
    Not planning to sell emotionally attached somehow.
    I have to consider the tax implications.
    Maybe i will call some builders and ask for approximate buid cost mediums spec.
    If we decide to go ahead, start the procedure by the end of the year.
     
  9. Madhu

    Madhu Member

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    Thanks @MTR
    I included subdivision costs also in the $350000.
    My problem is difficulty in assessing the end values of properties as there are few subdivisions around my area. My property is 2 km from train station. I will keep monitoring the market.
    Will talk to few agents to get their opinion.
     
  10. ottg

    ottg Well-Known Member

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    If you have a quick look at what's available in the area you mentioned:
    Clayton South Real Estate For Sale Results | suburbview.com
    Few houses available with large land ~650sqm. Most subdivisions have 2 bdr units built. It seems this is most popular. However looking at historical sales here:
    Clayton South Real Estate Old Listings
    You can see what sells, for how much and what stayed on the market for how long!
    Better you can search for your street. This should give you an better idea what to do!
     
  11. Madhu

    Madhu Member

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    Thanks ottg for your time and links. they are really helpful. will do some more research.