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Subdividing properties—dividing one property into two or more for added value—has been one of the strategies used by property investors to extract “instant equity” from their assets.
While this is a risky strategy, if done right, you can expect significant equity gains within a year, according to Positive Real Estate’s Sam Saggers. Once you have subdivided, you can hold the lots and wait for a good time in the market, develop by adding an additional property, or sell one of the properties to reduce debt or gain extra income.
Here is a simple four-step guide to ensure a good subdivision of properties:
Step 1: Buy a piece of land.
Before anything else, a property investor must take time to find the perfect area to purchase an asset. If this important part is rushed, chances are one would lose more than they could gain from using the strategy.
A good area, according to Sam, is:
Meanwhile, good assets could be:
Research the area’s minimum lot size as well as its demographics by contacting the local councils to know which type of properties would be best to cater to the needs of the people looking for dwellings. The local council can also tell you how much of the minimum block size can be covered by buildings, whether or not private open spaces such as balconies and yards and off-street parking are required, as well as the front, side, and rear setbacks.
Moreover, check for possible issues, including stormwater drainage, zoning, easements (walkways or parking spaces), encumbrances (minimum and maximum dwelling sizes or type of material to be used), and removal of trees (permissions are often required).
Sam said: “Choosing the right location can make all the difference between a successful subdivision and an undesirable financial outcome.”
Step 2: Find a good surveyor to manage your development application.
Applications are often state-specific, so it’s best to get in touch with the local council in order to move through the process smoothly. In order to save yourself time and avoid stress, find a surveyor who has handled subdivisions before and is willing to manage your development application for you.
“They can offer advice about the entire process, including potential costs you will incur,” according to Sam.
The surveyor will also prepare the subdivision plan to be submitted to the local council.
P.S. Avoid conflicts by informing your neighbors of your intentions once your application has been approved by the council—whether or not you will be living in the property you are developing.
Step 3: Construct two or more homes with the guidance of architects or builders.
Contact the local council to know the minimum land-size and, therefore, determine the number of homes you can build based on your block’s land size.
Sam said: “Some councils allow for land sizes as small as 300 sq m, which would be four properties on a 1200 sq m block.”
Take time to find reliable architects and builders to help you draw up plans and get quotes for the best value. As usual, cheapest isn’t always the best way to go—after all, in most instances, you get what you pay for. Set your budget right from the beginning and run a feasibility analysis on the subdivision, including all possible costs such as stamp duty, council application, developer charges, surveyor services, civil works, utility connection fees, and legal fees.
Sam advised property investors: “If you can, fix the price of the contract so you won’t risk over-capitalising.”
“Should you decide to sell, speak with your accountant about costs you will incur such as tax and duties. If you plan to rent out the additional property, don’t forget to include holding costs in your calculations.
“Should the process drag on, these costs will quickly begin to be a drain on your finances if you’ve not arranged for a long settlement period,” he said.
Step 4: Draw out the instant equity from the properties.
Finally, enjoy the fruit of your hard work! Population growth gave way to a demand for smaller properties because of the increase in housing density—making subdivided real estate assets part of the norm.
“While subdivision is a risky strategy and high-effort, if you use this strategy correctly, you’ll be able to squeeze as much profit as you can from a single purchase,” Sam concluded.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.