Join Australia's most dynamic and respected property investment community

Subdivision 'sweet spot'

Discussion in 'Development' started by Robbo03, 6th Jul, 2016.

  1. Robbo03

    Robbo03 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    54
    Location:
    Hobart
    In the near future, and after some further research on this forum and elsewhere, I am hoping to complete small subdivision/development projects around Hobart. I'm looking at starting with small projects, something like a basic cosmetic reno and subdivide the block into 2, selling both for a quick(ish) profit.

    The question I have encountered while doing some feasabilities is with all the purchasing, selling, holding, and subdivision costs, is it possible to make a profit on a sub $300k or $400k property. Even with all the services already on the street so allowing the subdivision to cost only $15-20k, I still can't seem to make the numbers work. And it's not even close.

    Is there a purchase price 'sweetspot' where more projects will make financial sense? Or am I making a huge error somewhere?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,758
    Location:
    Perth WA
    Often it's the selling that makes it not worthwhile. Factoring in the thousands of dollars involved in that part can make or break it.

    You need an area where there's a decent price difference between renovated and unrenovated properties, and a demand for small(er) vacant land.

    Does it make any difference if you build on the newly created block?

    Also, not all markets are conducive to every strategy - if Hobart isn't, why not look elsewhere?
     
  3. Robbo03

    Robbo03 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    54
    Location:
    Hobart
    Thanks for the reply @Jess Peletier! Some interesting points.

    Agreed. It would be ideal if I hardly had to touch the original house but generally in this strategy I think there will always be some touch ups that are required to maximize the sale price. In the price point I'm looking at ($250-400k) I would hope to spend no more that 20k if possible. Really, this isn't where I wan't to make the profit, the splitting of the land is what I am hoping will see the gains.

    The sort of property I was hoping would work is here: Sold Price for 172 Flagstaff Gully Road Lindisfarne Tas 7015

    I know that this was purchased with the intention of doing a small cosmetic reno, subdividing and selling both lots. Estimating sale prices of around $280k and $140k there is no way I can see this making a decent profit. Am I missing something, or is it likely this buyer hasn't done a reasonable feaso and is about to lose some time and money?

    TBH I havent really looked into it due to financial constraints. I can afford to buy in the $250-400k range, spend ~$50k on subdivision but no was a build. Certainly if I can increase my equity through a few basic subdivision small development will be the next step. It is certainly somewhere I'd like to get to.

    Another option could be to buy a more expensive site, and put in a development application and then sell with approved plans. Just thinking out loud at the moment!

    This is something I have thought about, although, ideally I'd like to learn the ropes close to home then branch into other markets with a little more confidence. Price point here makes it quite appealing too. Although, this could be the issue I can't get any of the numbers to work.
     
  4. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,318
    Location:
    Perth, Melbourne, USA
    How long is a piece of string.

    One thing that I notice many brush over is market conditions, if you have a strong market and land is rising and you get the other stuff right there is a good chance you will make money.

    When markets are soft this is when a developer is moving into higher risk territory because you can only base it/figures on today's figures and that is the issue. I don't know what's happening in Tassie, but I am guessing its flat?

    With your scenario if its tight move on.
    When subdividing and building new at rear can be also an issue where buyers are not interested in the original home and therefore selling price must be discounted significantly. I don't touch this stuff unless the land is scarce in a particular area, this will in most cases mean higher end value$$$

    I think building at rear and retaining original home can work well in areas where land is tightly held, hope this makes sense. As I mentioned before market conditions plays a major part with this strategy.

    MTR:)
     
    Last edited: 7th Jul, 2016
    Leo2413 and Skilled_Migrant like this.
  5. legallyblonde

    legallyblonde Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    685
    Location:
    TAS
    The issue in Tassie is that there is little demand for small blocks.. most people want 750sqm at a minimum. We like our personal space down here. I have previously looked out for subdivision potential and to date I haven't seen any with great numbers. . Especially once holding costs are factored in.
     
    Robbo03 and Leo2413 like this.
  6. Skilled_Migrant

    Skilled_Migrant Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    688
    Location:
    Melbourne
    The trick is in finding property where the seller does not realise the subdivision potential and is therefore not including the premium for it. If you see the words "subdivision or subject to..." in the advertisement that means the numbers will usually not add up.

    The sub-divisibility and your chances to locate it when others do not will also come down to your knowledge of local planning laws i.e. minimum lot size, parking requirements, privacy requirements, turning circles, height restrictions, driveway cross overs, etc.

    Town planners might help, but they are usually engaged after the purchase. So when house hunting, the decision is more or less by the investor and therefore planning knowledge is the key.
     
    legallyblonde, thatbum and MTR like this.
  7. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,318
    Location:
    Perth, Melbourne, USA
    Good point.
    Another way to buy below market value is to look for out of area agents, also agents who are lazy and are not working for the seller but will work for you.

    I just posted my Croydon, Melb 3 townhouse development, I purchased this property for at least $80-90K under market value, yet the market was booming. I have been lucky enough to do this a few times now, not cos I am smart, but because there are plenty of lazy agents around

    MTR:)
     
    Observer and Skilled_Migrant like this.
  8. Robbo03

    Robbo03 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    54
    Location:
    Hobart
    Thanks @Jess Peletier, @MTR, @legallyblonde and @Skilled_Migrant. Solid info.

    To answer your question @MTR, the Hobart market has been flat for a long time, although, you may have heard in the media some commentators are expecting some movement in the near future.

    To follow on from everything above I have a couple more novice questions:

    Is it generally the case that if the basic land subdivison doesn't make sense that building on the back also will most likely not be financially feasible?
    To find property where the seller doesn't know the potential would letter boxing be a viable option? Obviously I'd need to ensure I know the local planning guidelines and that it will stack up at a certain price.
    I've already spoken to a land surveyor to get some key area details, would a town planner also be able to assist? Are there any other people that could help?
    And with all this in mind if it still doesn't work looking interstate will be the next option. Do any of you hire project managers to hold your hand through the process when working with interstate purchases? Obviously this cost, as well as BA fees would need to be factored into feasibilities.

    Tom