5 questions you must ask before subdividing

Though we still believe that property is the best long term investment one can make, the market has become a lot more volatile.

Consequently, we advise those who wish to maximise the returns on their investment properties in Perth to look at how they can add value to property so that they are not just relying on the market growing.

Taking a more active approach to investing is not for everyone and to avoid the pitfalls we suggest you seek guidance from firms such as ours who are specialists at these types of strategies.

Currently, one of the more popular techniques for maximising returns is buying properties that can be subdivided or developed. We would like to give you what we feel are the five essential questions that you must ask to maximise your returns and avoid costly mistakes when subdividing.

(1) What is the current zoning and can the property be developed now?
You can find the current zoning or R-code by checking with the council. Then, use the R-code to help you determine if and how a property can be developed. Believe it or not, your council will be happy to help you in this area.

In addition, you should work with a buyer's agent who knows the Perth market extremely well and can round out your “team” with a builder and a surveyor. In a fairly short amount of time, you should be able to determine whether or not the property is worth investigating further.

(2) What is the proposed zoning and timeframe?
Many investors are making a tidy sum by picking up investment properties in the Perth area that are about to undergo zoning changes. You buy a property at today's market value that is poised to be rezoned to allow greater population density.

This is not a “get rich quick” scheme because it often takes a number of years for a council to change zoning. Make sure to contact the town planner and find out the expected timeframe for greater population density. It is always a good idea to make sure that you can make money with the property as is and then when the zoning change comes through it’s a bonus to boost your profits!

(3) Can the existing house be retained?
While waiting for zoning changes and when actively developing a property, it helps if you can produce cash flow by renting the house that is already on the property.  This is especially important in smaller subdivisions where a lot of the value of the property is contained in the building.

(4) What is the likelihood for capital growth over the next 1-2 years?
As we mentioned earlier, developing property is risky and competitive. Changes in the market can help or hurt you to the tune of thousands of dollars. Consequently, you want to focus on developing in areas that are in demand and poised for maximum capital growth.

Things to look for: impending improvements in infrastructure and amenities, a market that is trending upward and the likelihood of a lively, growing area.

(5) At what purchase price are the returns worth it?
Too many well-meaning investors fail to ask this question or they ask it from a best-case scenario, thus inflating the price they are willing to pay for a property. The most reasonable thing to do is to ask this question from a conservative market viewpoint to figure out what your investment property in Perth is likely to sell for.

As when preparing to subdivide, we recommend consulting your team, consisting of a buyer's agent, a builder and a surveyor who are experts in the Perth property market. You need to allow for interest, purchase costs and other expenses. We recommend that you build in a minimum profit margin to calculate how much you can pay for any investment property.

About Jarrad Mahon

Jarrad is the director of Investors Edge Real Estate.

Jarrad thrives on helping hundreds of investors every year formulate a clear plan to get the best returns from their Perth property. This requires a carefully thought out and innovative approach to understand your situation and help you to make the right move at the right time.

His renowned personalised "Property Success Plan" takes you step by step through how to make thousands of extra dollars and avoid the costly mistakes that Jarrad has learnt the hard way by investing himself all around Australia.

Over the last five years he has used his engineering background to build and refine a unique property management, sales & investing process that is sure to impress while getting you real results.

A sales and marketing expert, Jarrad combines the latest technology and cutting edge sales strategies to sell homes across the whole of Perth metro area.