Subdivide, build, sell... Thoughts appreciated

Hi Guys,

First time poster here after long time reader of the forums. Looking for some opinions / thoughts on my current situation here in Adelaide.

My wife and I earn $145,000 a year ($100 k her, $45k self employed (variable)) have no kids and currently 'own' 3 properties here in Adelaide's western suburbs.

OO - Bought 2014 off housing trust $260 k plus $50 k reno. Current bank val $410k. 490 sq m block (12m x 38m approx) Kidman Park.
IP1 - Bought 2015 $515,250 current val $615,000. 670sq m block wedge shape ( 24 m frontage back to 13 m) Fulham Gardens. Rented $375 a week

IP2 - Bought 2009 $262 k hommette in block of 8.Current Val $310K. Single story with back yard. Semaphore Park rented $280 a week.


OO property has a shared wall and roof line with next door both on separate torrens titles with next door approx 5oo sq m. Neighbor has indicated she wants to sell in next few years and move into a care facility. She is prepared to sell to us off market for a fair price. Land values in the area have recently exploded with it being designated medium density as a Renewal SA project area. Block next door of 11oo sq m just sold approx $7000K and has been approved for 5 town houses facing street. Changing area with primary school at one end of street, kindy at other. 2 Shopping centers within 1 km and good public transport to city.

There are 2 questions,
1) Do I approach the neighbor now before prices rise further and how would I sell it to her? ie live rent free for a couple of years and pay the interest. She pays water / council rates etc....

2) How do I maximize the profit of the project with minimal risk.... Knock down subdivide into 3/4 and sell land or build myself with a JV partner? To fund myself would potentially have to sell IP2.

Comparable land is selling for $1k -$1,2 k a sq meter ( blocks behind which have been subdivided)
Comparable houses around $500k

Wife and I are looking at kids soon and this would kill our lending serviceability. Currently we could borrow $350k to purchase easily. $ 100k in the bank and equity.

Thoughts appreciated