Small developments give options for big profits
For those with little cash left after a deposit, a small development or subdivision may be easier to implement than a renovation.
Extended settlements and option agreements may be possibilities and Renovating for Profit’s Cherie Barber explains that these are still accessible.
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“I believe that if you are limited by cash, then getting into a small development is actually easier than getting into a renovation project because one of the core things that people use is ‘options’ on small development deals,” she explains.
“Options allow investors to gain access to a property despite their not having legal ownership. This ensures they have the ability to try and re-zone the land to a higher and better use through a development application.
“What people do is go and get an option over a $700,000 site, they’ll go and get an option fee of $7,000, then they’ll get it DA-approved by going to council. They generally renovate the house to the front of the block and then what they do is when they get it approved they get it re-valued. And when it is re-valued, it’s of a higher value because it’s for two dwellings not one."
The property may now be worth $900,000, and can be on-sold to another developer or builder.
“If you’re buying something for $700,000, you’ll take away the option fee, the $7,000, the council process might take $20,000 and then the stamp duty when they settle, but they are still about $100,000 ahead depending on the values in that suburb,” Ms Barber says.
For the most profitable venture, investors should be looking to up their game and do the entire build on the subdivided section of the land.
One subdivision project Ms Barber undertook as a novice in Sydney’s Balmain had her on-sell before the build took place.
“I made a good profit and it was one of my first subdivisions, but I’m kicking myself now I’ve seen what profit I could have made,” she laughs. However, given her lack of experience with builds at the time, she probably made the right decision.
Investors should seriously consider development as part of their property strategy, Property Secrets’ Paul Giezekamp explains: “Looking at something small to start with is definitely the best bet,” he says. “You can look at selling the back block and keep the front for around $15,000 for council approval costs and alterations. After this, you can then start looking at duplexes – but that’s stage two or three.”
