Subdivision, when carried out with due diligence, can lead to significant equity gains for your property within only a year. How do you execute this strategy correctly?
Subdividing properties is defined simply as dividing one property into two more for added value and while it is often considered risky, a lot of investors choose to implement this strategy to be able to extract "instant equity" from their asset.
One of the first factors to consider when looking for a good development block is the area's zoning, according to property investment adviser Erin Warbrook.
This information, referred to as the density codes, will help you determine "the minimum and average site area per dwelling, the maximum plot ratio [or the] percentage of house coverage for each block, minimum and average setbacks, and the size of your courtyard area".
After you have determined the area's zoning, Ms Warbrook recommended engaging a trusted builder to lay out a development plan that adheres to the rules of the local council.
“The approval process can takes months longer if it is incorrectly submitted,” she said.
Once the development plan is approved, you can now proceed to the building process.
Before commencing the building process, consider these factors that may influence your development project:
According to Ms Warbrook, the shape and slope of the block can determine the number of dwellings that your property can accommodate.
She explained: “The shape of the block can restrict access or reduce the usable working area of the land making construction impractical [and the] slope of the land has the same effect.”
When choosing a development block, the property adviser strongly advised checking for allowances on land to make sure that you avoid unnecessary restrictions and unwanted impacts on your finances.
"When blocks are being marketed by real estate agents, they also make no allowance for these attributes and it may have large financial impacts on your outcomes," according to her.
Aside from the shape and slope of the block, a survey on the parcel of land can also help you determine the number of potential dwellings that can be accommodated.
To help you conduct the survey, engage an experienced builder who specialises in the area where you want to build.
Ms Warbrook estimated the cost of survey to range from $550 to $1,500, depending on the size of the block.
She said: "This should be considered as an investment in your project and not a cost as it could potentially save you thousands of dollars in lost revenue."
Unlike the shape and slope of the block, the positioning of major services like sewer, water and power may not present restrictions on your subdivision but it can have an impact on your expenses.
For one, sewer and water must have a certain gradient so the services will continue seamlessly when the houses have been subdivided.
Ms Warbrook explained: "If the topography of the block does not lean towards the correct gradient for these services to work, it may cost multiples of thousands to make good the levels to ensure a successful development."
Moreover, different areas abide by varying local council rules on developing properties. In Western Australia, for example, developers may be charged a fee to connect subdivided properties to the existing services, according to the property adviser.
She strongly advised investors looking to subdivide their properties to do their due diligence and seek local professionals, especially a good builder and surveyor, to help them go through the process.
"The key to a successful subdivision is upfront knowledge and most of it can be obtained before you even purchase the development block," Ms Warbrook concluded.