Rental Yield vs Subdivision Potential?

Hi guys,

I think I know the answer but just wanted to confirm with the gurus here that I'm on the right track.

I'm considering a few properties in Carrum Downs, block size roughly 550sqm. However I'm also thinking whether it would be better to go for a slightly larger block and Subdivision potential?

I'm guessing this would depend on my strategy, that is what is more important for me at this stage, rental yield or CG. As rental yield is critical for me too be able to continue growing my portfolio, I assume I shouldn't be focusing on subdivision potential. Please correct me if I'm wrong.

Thanks!

 

Hi @Realist35

If you are looking to build equity and leap frog further, subdivision may be able to provide you that. This is important where you are equity reliant, and would like to build your portfolio quickly.

 

Thanks Ali.

As a rule of thumb, these properties (with subdivision potential) are always more expensive for the same suburb?

 

How much more are they? Something with development potential compared to a block size with one house on it.

 

That's exactly what I'm trying to figure out.

I think for someone who is near the end of borrowing capacity (well after these two purchases in Melbourne I will be), it might be wiser to achieve higher rental yield and hence avoid subdividible properties as the latter ones are sold at a premium in my understanding. Happy to be corrected.

 

This question raises an eyebrow for me.

If you're buying something for development potential, then you should know what that development potential is an how much its likely to be worth. If you don't, then you should probably leave it alone and use a different strategy.

Otherwise you risk overpaying for something that may or may not even be able to be developed.

 

Ask your ba?

Perhaps a different strategy might be to only buy one more place before you max out. Keep the additional funds ready to go at a later stage. Pay down some debt to help with cashflow.

 

I think before thinking size the "numbers need to stack up". This suburb is like 36-38kms away from CBD and is close to frankston. Also if a 3 bed unit is like 350kish and there is land mid 400-500Kis, do you think it will stack up? Now with the new zoning laws gazzetted that would leave you 500-600sqm (having 30% of garden space). You could prob squeeze in 3 units but it would be really small unless you want to go up another storey and it could be more building cost wise. by the time you spend 900K + 500K (assuming build and purchase) 1.4mil and assume you can get 3 on them that would be what? you couldn't even cover the cost of the build as say even 400K for a 3 bed unit would be 1.2 mil.

if you recall there was a poster who bought 2 blocks side by side In Brisbane and then complained that it was not zoned or the unit or TH were not highly priced enough to justify subdivision and building process. Maybe a hold for 3-4 years till prices go up for units.

 

Although I have developed/subdivided in CD previously, at today's prices it's a long way away from making sense. So paying a premium for a development potential block that doesn't stack up really isn't a good plan. In regards to CD, it'll be years before it does.

Even in Frankston North where they are selling knock downs in the mid 400's.
Say 470k buy including costs
400k knockdown and build 2
30k for sub div, legals etc

Owes you 900k
You'll need to sell each unit for 450k just to break even. Even getting 500k you'd barley make 10%

3 bed units are not selling for 500k in Frankston north or Carrum Downs.

Definitely wouldn't go 'all in' on a development site in a market like this.

 

Thanks @melbournian and @Connor .

What about just subdividing and selling the land at the back of the house, keeping the house.. Would it be worth paying a premium for such a deal?

 

My opinion Frankston/Langwarrin/CDowns the horse has bolted for any decent growth now
If purchased around 2013 be laughing

Speaking with successful developers not much stacks up atm

 

Agree with rest it has already taken off back to drawing board

 

Thanks mate.

I have spoken with someone who is daily on the ground in those suburbs and the market is very very very hot! Stock is tight and deals are snapped instantly. Isn't that what matters?

What are the alternative suburbs worth considering in your opinion?

 

I reckon buying in the area now would have to be damn close to peak unfortunately, buying in 2013/14 would have been the time to purchase.
I lived in the mentioned areas and it has definitely gone bonkers.
Friends houses have almost doubled in that time frame.

I am not currently looking but reading and hearing Gold Coast may be on the rise.

 

Well my first post!

Why not go for the larger block (provided it has the size and orientation for a sub division), hold for a year or so, then split the block on paper, titles etc, get a new valuation and hopefully unlock some equity.

Thoughts?

 

At current prices, doing this in any of the areas mentioned above will leave you very deep in the red.

Possible to apply this strategy in other areas though