When scouring for potential investment opportunities, you can’t look past a property with development potential. But what makes these listings so special?
Not only does the value of these blocks outpace the surrounding properties, a development block also offers you a wealth of incredibly lucrative options.
Let’s cut through all the marketing hype and get to the root of what makes a development block the holy grail of residential development.
A block with development potential means you can effectively subdivide the block and add additional dwellings. This has the potential to add hundreds of thousands onto the value of the property, even doubling the asset’s initial price tag.
Make no mistake, this isn’t something that is reserved for the ultra-rich or development companies with deep pockets. These opportunities come in all shapes and sizes, and ordinary Australians can also reap the rewards.
So... How do you find these holy grail listings?
You can specify development blocks in your online searches by using the terms “development” or “DA”. A property with a development application or DA, means that approval has been given to develop the property further. This could be the addition of a granny flat, townhouses, duplexes or a subdivision.
However, the real opportunity comes from properties that have development potential without having any DAs. These properties are offered at a lower sale price and by simply submitting a development application and having it approved, the value of the property increases significantly.
You can profit from this windfall in a very short amount of time.
This is the most simple and straightforward way to profit from a development block.
This involves subdividing the property into two (or more) separate lots that can then be sold separately.
For example, let’s say you purchased a $350,000 house, with say, an 800 sq.m. block. Now, let’s also assume the house on the front of the block, and that there is, for example a 4m wide driveway – this is essentially what people call a “Battleaxe” block, and it is one of the great equity building assets you can add to your portfolio.
Now, lets say the value of the raw land at the rear has a resale value of $150,000. You can effectively add, after costs, about $100,000 to your balance sheet in just a few months.
Further to that, you can even take it the next step, and get a DA for the new site.
These types of investment opportunities are worth much more since both developers and builders also take an interest rather than just owner-occupiers or buy and hold investors.
The reason for this is not only that is there more options for both builders and developers to make more profit from the site, it is also means progress moves much faster and all the hard work has been done on your end.
By submitting the development approval, you have done your due diligence and filed the paperwork for the next buyer to take advantage of and do their part.
How would you know if you had a block with development potential?
Not all properties mention this in their marketing. This can be an advantage for savvy investors who know what to look for. Real estate agents don’t always mention this in their listings, some don’t know, and others might not want to risk stating DA potential if there are limitations on the property.
Your best avenue is to check with your local council.
This can take some time to understand what is allowed in the town plan and what could be red flagged when it comes to submit your DA.
The last mistake you would want to make is to purchase a property, have designs drawn up, and lodge your DA only to find it has been rejected. This happens all too often with inexperienced investors and is easily avoidable if you just do your due diligence.
Seeking advice from a town planner is the best way to cut through all the confusion. The town planner can highlight areas that might prevent your DA from being approved before you decide to make an offer on a property.
What is allowed on each block, depends on the zoning as well as several other conditions that would affect the development of certain types of properties.
Certain blocks will always offer greater potential. Look for properties that have dual access such as corner blocks and blocks with front and rear access. These will not only be more valuable but will also offer more flexibility with what you are able to build.
Another aspect to consider is where the property is located.
Most town plans will have higher density zoning in areas close to transport and amenities. Some areas have been recently rezoned, and development is still catching up. This means you can pick up an affordable site that even the vendor is not aware of its potential.
So you see, by being a savvy investor, with an entrepreneurial mindset, you can unlock some hidden wealth building super-steps that will accelerate your journey to go from where you are now, to where you want to be.
Of course, it always pays to build a team of experts and professionals who can help guide this process for you, and to fast-track your success, whilst helping you to avoid failure.
Good luck out there.
By Glenn "Goose" McGrath