Using subdivision as an investment strategy

Hi everyone

I was wondering if people who have an investment strategy of small scale development could share their experiences with this approach? How many developments have you done? Have you tried this approach in the city that you live or other cities? Have you engaged professional companies in this process or managed it yourself? Do you do one development at a time? Are there particular problems to look out for? Sorry for so many questions!

We are just starting a small scale property development (3 villas) in a suburb of Perth. If it goes well, I am thinking this might be a good strategy to replicate for the future (doing one small development at a time) with the intention of renting them out for passive income.

 

It can be a clever strategy to build equity faster than waiting for capital growth to occur, but it is not for everyone. For starters, there are a lot of soft costs that come out of cash reserves - so you can't rely on borrowed funds for the costs associated to some parts of the project. So your cash position up front needs to be stronger than a standard investment strategy. Upon completion, getting the property re-financed and reusing the equity to start again is a clever way to go. Usually the end product results in a positive cashflow as well - especially when you account for the current low interest rates and the premium rents that will be achieved on a brand new property. Also, great depreciation benefits! Good luck!

 

I'm a big fan of it. I've been developing since I bought my first site in 2006 (I think?) and it's gone from a side hustle to my job.
I started off one at a time and now I have multiple on the go and client site project management
The hardest thing is finance and the larger deposits needed to meet finance requirements.

 

I've just started out on my first 'proper' small scale development. Just completed this first project earlier in the year, which was a retain, renovate, subdivide and sell off.

This is after years of general investing, renovation and subdivision experience though. I'll probably continue to do one project at a time for a while until I also a time I also hope it will go from side hustle to full time.

 

Adding to this strategy, (and I know the answer will depend on a lot of different factors), but is there a broad answer to:

Do you have a preference for a property that can be subdivided into 3 lots as opposed to only 2?

If a property can be subdivided into 3 would you ever only subdivide it into only two?

Do you have a preference for single storey developments instead of double storeys?

 

Generally it comes down to finance and feasibility. If your budget/serviceability doesn't stretch to 3 then you should only consider 2. But if you can afford both then you compare all scenarios for a site:
Scenario 1: three double storey houses
Scenario 2: three single storey houses
Scenario 3: two double storey houses
Scenario 4: two single storey houses
Scenario 5: three houses , one single storey, two double storey
etc

When comparing single to double storey it is quite often that single storey may win due to cheaper construction and faster build times which reduces holding income BUT the smaller the block the higher the chance you will need to go double storey.

 

Its not really an investment strategy its a wealth creation strategy (Investment side should be looked at after the development is complete)

Mixing in with an investment strategy might reduce a few risks (unable sell and market down turn - though this is also an investment risk)

Its definitely a full on time wise (specially during paperwork if you want it done quickly) Though I think as Westminster says if you can succeed you can easily go from side hustle to main job

Ive also got a 3 villa site coming up in Perth. Still in early stages (DA/WAPC pending) but seems to be going quiet smoothly compared to developing in NSW (6th project but I believe it will over take project 5 in completion dates)

 

I've done a couple of subdivisions. First one was a straight subdivision and the second was a subdivision and reno.
Did well out of both but I think the real money is in subdividing. With the reno we got paid for the work we did but I dont think we created any extra value over and above the cost of the materials and our own labour.
Handled both subdivisions myself but next time I'll use a project manager. So much faster when you have someone constantly focusing on it rather than me doing it when I get the time.

 

Can you please tell how much it costs to subdivide in Sydney west , 1 big plot to 2 or 3.
Going to inspect a huge block tomorrow.
Thanks,
Vish