The Key To Unlocking Profits Through Subdivision
30 Mar 2018
Subdividing your property or any seems like a no-brainer of a way to make some extra money from property that you already own. As people’s priorities & families change and land values increase, many people are more than happy to forgo the backyard cricket pitch/BBQ area in favour of making a tidy profit. You just divide your block into two, sell half (or both) and walk away with the cash, right?
Unfortunately it’s not quite as simple as that. While subdividing your block can be a great way of making some extra profit from your property assets, there are a few things you have to take into account if you’re going to do it successfully.
Making sure your property is in the right area for subdivision will make or break your development success. Do your research and make sure that you’re in an area that people want to live. Think of your target market and what they’re looking for.
Inner city areas with limited availability of land are always strong contenders, but they’re not the only suitable areas. Locations within 15-20km drive of the city centre can also represent great opportunities that allow more freedom and creativity in your development. There may also be room for growth in outskirt areas if there is some desirable infrastructure taking place there, so it really does pay to do your homework and make sure that your property is viable before you go through with what can be a lengthy and complicated process.
Real estate development isn’t a cheap exercise, so with so much money at stake there’s generally not much room for error. Thankfully in the internet age it’s a lot easier to get the information - property values, resale prices, what other subdivided blocks in your area are selling for etc. - that you need to see if your plans are financially viable.
It’s crucial to get a good idea of how much the property (or properties) will sell for. Overestimating the sale price is the number one mistake people make. You also have to subtract the costs of the subdivision process - legal & application fees, cost of connecting services like water, sewage & storm water drainage and construction costs - from your net profit.
How To Subdivide
There are generally two ways mum-and-dad developers subdivide - stay in their home and build a property out the back or knock down their home and build three (or four if the block will fit it) units or townhouses.
The Right Expertise
It can be tempting to want to save money and do everything yourself, but the best course of action is to employ a builder who knows the development well. They’ll be able to engage the expertise of surveyors, town planners and independent certifiers, to help navigate the following issues:
- Town planning regulations
- Zoning restrictions
- Ensuring access to services for the new block - water, sewage, electricity and storm water drainage
- Legal issues and access to the site
Not underestimating in any one of these areas can result in extra expenses and costly delays that could severely reduce or even completely wipe out any profits you make out of the subdivision, so it definitely pays to make sure you have the right people around who can get things done right the first time.
All of that being said, subdivision can actually be a great development strategy for the current market conditions if it’s done right. It gives you the flexibility to play it safe and sell off a newly created piece of land while reducing your mortgage (or delivering you a profit if you own the land outright). If you’re thinking of subdividing and are looking for a building company that can deliver cost efficient units, town houses and apartments on your new block that will maximise your profits at sale time then give us a call today!
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