Assistance with Subdivision Feasibility in Adelaide

Hi Everyone,

In a similar vein to this post, I’m looking at the feasibility of subdividing & building in Adelaide, though with my own money and either on my own or with one of the groups who will ‘hold your hand’ through the subdivision and sale process. I’ve opted to use a town planner in this estimate instead of a ‘hold your hand’ company as I’ve read that they can be just as useful at arranging who I would need.

Background on me: 24, live in Adelaide, own 1 IP in Brisbane, steady job of 3 years with the ability to borrow 500k+, looking to have around $100,000 in cash before undertaking a subdivision (roughly 12 month away at this stage).

As an academic exercise I’ve picked this block:
http://www.realestate.com.au/property-house-sa-clovelly+park-114486383

It’s 800sqm, 59’ (20m) by 147’ (49m). Ideally I would find a block with a more decrepit house on it but it will do for this exercise.

The house is in:
Marion City Council
Residential Zone
Policy Area 13- Northern (see pg 196 of council development plan)
Low scale, low to medium density

Pg 205 of dev plan tell me that detached housing needs 375 sqm and 12m frontage (no-go)
OR semi-detached (torrens title?) needs 320sqm with 9m frontage.
Row building has smaller sqm and frontage needs but haven’t sold well in the area as far as I’ve seen.

Is close to public transport, schools, a park or two.

Here are my numbers for a basic 1-into-2 subdivsion:

Purchase Price: 360,000
SD: 14,830
Transfer Fee: 2,524
Legals/buyers agent/tests: 3000

Demolition Cost: 25,000
Removal of trees: 3,000

Holding Costs:
Loan Size: 324,000
Interest Rate: 6.5%
Holding Period: 12M
Loan cost: 21,060
Emergency Services Levy: 800
Council Rates: 1288
Insurance: 400

Subdivision Costs:

Town planner (to run the subdivision process)
Fees: 5,000

Surveyor:
Unknown: 2000

Council Costs:
Lodgement fee: 57
Development Authorisation: 57
Planning assessment fee: (development cost x 0.125%) What is the development cost?
Schedule 1A Application: 48
Building assessment fee: 1000 (assume 300sqm)
Other: 500


Connection of services
Phone: 299
Power: 15,000 (thoroughly confused, can anyone help me narrow down this cost?)
Water/Wastewater: 15,000 (can anyone help to narrow this down?)
Sewerage: 15,000 (is this the same as wastewater?)
Crossover: 1,000
Driveway: 5,000 (is this reasonable in a small duplex?)
Fences: nil

Title registration: 500

Total costs: 490,701.35

Land Sale: 245,000 each
Sale costs (3%): 7350

Total Income: 475,300

GST: 13,000

Profit/(loss): (28,401)

So as an investment this doesn’t seem to work very well. I acknowledge that the purchase price is too high to be profitable, but short of buying for $250k I don’t see how this can work.

There are probably 50 blocks around Clovelly Park/St Marys which have been subdivided 1-into-2 so the economics must stack up. Would it work better if I opted to build the houses too?

Can anyone see flaws in my numbers?

Many thanks,
AndyM :)
 
Hi Westminster,

Thanks for the reply, does doing the build make that much difference? I had imagined that most of your profit as a developer was realised when splitting the block. If the subdivided land in the area is going for $245k, and a torrens titled house is going for $465k, would there be much extra fat in there for the developer?

I had previously had a look at that property you sent through but was put off by the slope of the land. My understanding is that building up the land, installing retaining walls, and trying to get the services to the house would increase the build cost, and thus the subdivided land cost, pretty significantly?

Thanks,
AndyM

Ps. Loved reading your threads, good luck with finally getting the approvals you're waiting for at Highgate!
 
Hi Andy,

Most of the subdivisions around the Marion/Warradale/Brighton area are being done by builders. Being builders, their costs are less than what they would be for you or I which makes it easier to turn a profit. Having said that, with the right advice, I'm sure there is money to be made for investors.

I have worked closely with Simon Zybek from Zybek Consulting and Management in the past. Simon is an Adelaide property development guru and I'm sure he'd happily go over your numbers with you and advise on areas where savings can be made.

http://www.zybek.com.au/

Regards
Damien Cox
 
Howdy newbie,

Welcome to the forum, you'll learn heaps from here.

I'd like to show you an alternate to a knock down subdivide- as you can see from your cost analysis there is no money to be made with this strategy. These days you really need to find a 1 lot into 3 to turn a profit and obviously these sites are hard to come buy and closer to half a million buy in.

As a first development I'd suggest you have a think about a subdivide and retain project as it is a much less riskier project with a better return -you aim to buy a house on a block with enough room to cut off the back yard and retain the front dwelling and have it rented out for the entire time to help cover the holding costs.

I'll use the example in the attachment below, it is a basic concept plan of a hammerhead subdivision, this is a house at 6 Wright St Edwardstown SA, that recently sold for $410,000 at auction, it is also in Marion Council (320m sq min for semi detached allotments, 375m sq for detached).

As you can see from the plan you would end up with a 1950's house at the front on a 362m sq torrens titled block, and a torrens titled hammerhead block of 375m sq (excluding the driveway) at the rear.

$410,000 purchace price
$20,000 stamp duty
$30,000 torrens title subdivision (everything included)
$10,000 for a new carport and driveway to existing dwelling and a new fence to partition the new allotment (I always do my own work)
$5,000 negative holding costs if you have the property tennented for 48 weeks of the year
so thats a total outlay of $485,000
and you'll have a hammerhead block worth about $200,000
and the house in front value about $365,000
total combined value after subdivision $565,000
Net equity gain of $80,000 (before sale costs)

Food for thought :)
 

Attachments

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Hi Erica,

That's interesting about the 1 into 3. Is this the same all over Adelaide do you think? I remember chatting to a guy at a seminar about 6 months ago about how he focussed in the north-east and exclusively did 1 into 2 & sell as house and land. I wonder if he's struggling now.

That strategy is great, I've seen a lot through the underdale & torrensville area. Are these blocks relatively easy to find?

How do you get away with only having 362 sqm for the front block? Negotiations with the council?

Do you happen to have a breakdown of the subdivision costs for a typical hammerhead?

Is this the type of property which you would hold afterwards? If you put down 40k for a deposit then total cost would be around $100k, with ROI=80%. 40k deposit would allow for around 75k to be drawn down from the loan (theoretically) which could be used to fund the next project. Though, you'd then have to go through with building a place on the vacant block. Might give a little cashflow.

If the two blocks were sold, I calculate you'd lose around $30k to GST and fees, and another $17k (ish) to income tax on the remainder. I don't see how that's good business as cash in hand profit is reduced to around $35k, yes?

Thanks,
AndyM
 
to sell or to hold, that is the question

Hi Andy, I've undertaken just the one hammerhead subdivision and decided to hold the rear lot and am building on it, I'm also holding the front existing dwelling tennanted, I agree the selling costs, GST and CGT take a huge bite out of your gained equity, thats why I prefered to use keep my hard earnt equity and used it to leverage furthur (get finance to build then buy again). But it does depend on your overall investment strategy, I'm investing for retirement so want to hold long term anyway (25yrs). If you were looking for short term cash gains you'd just have to grit your teeth and pay the taxes now.

There are multiple properties that are suitable for back yard cut offs, you just need to look a bit harder for them as they wont necisarrily be advertised as subdividable.

You also need to be familiar with the council zoning policies in the area you are searching for plus some building guidelines, for example in the Marion zone 13 we used as examples, you need to have 20% of the entire block as Private Open Space off the living area, plus you need enough width for a driveway and garden edges 4m all up (each council is different on hammerhead driveway requirements, city of Charles sturt require 5m width, City of onkaparinga just 3m width, so the development plans are good reading) plus you must adhere to building setbacks off the rear and side boundaries etc etc but with a bit of extra due dilligence they can be found.

Now if you like the idea of hammerheads, just wait untill you find a corner block cut off! They are rare but do come up every now and then, I won't share an example with you at the moment as I'm trying to purchace them myself hehehehe. :p
 
If you look long enough you will find multipe examples of slight variations on allotment sizes within council zones, I got a small reduction on my block, from memory it was just a $165 'non complying development fee' I'd think 13m sq would get through easy enough. (dont take my word as gospel though..)
 
No worries, I saw that fee and wondered how far a development could be non-complying.

I've read about council contributions in QLD, do we have those in Adelaide? Something along the lines of, because you're splitting the blocks, thereby increasing density, you have to pay a fee (3-5k) for the upgrade of council facilities to handle more people?

Short term cash gains are great, but if you're losing 60% of your benefit by selling perhaps holding till you can afford the next one is the way to go. Esp if it should be nicely CF+ if you have a 20% margin on it.

I'll definitely keep an eye out for those hammerheads first up, I'll let you have the corner blocks but I can definitely imagine where you're coming from!!

May I ask about your finance for the build: Do you have to put in some extra capital in order for the bank to lend you the 150-200k for the build of the house? Or can that come out of this newly created equity and just increase your loan?
 
yes there is a development contribution fee (or open space contribution something like that, cant remember the exact wording) of $6500

when you find a property that you want to buy, show the title to a SURVEYOR they will provide you with a writen quote of your entire subdivision costs, i've just tried to dig out my old quote doc. but cant find it, and i cant remember exactly all the things on it

for a standard torrens title it came to $26,000 approx (so I always budget for $30k in my costing/profit analysis
 
Great, thankyou!

What about the finance side of things? Completely understand if you aren't happy disclosing on here.

AndyM
 
The increased equity generated at the point of subdivision was sufficient security for the bank to lend 100% of the construction cost, the 2 titles became cross-collateralized (unavoidable) but I'm not fussed about that.
 
As you can see with Jim's quotes above for torrens title vs community title subdivision, there are some risks for significant cost blow outs particuarly with infrastructure costs to SA water, this is where a surveyor is so crucial before you purchace land, Jim's subdivision requires a sewer main extension because there is no sewerage running along the street where the new block will be located.

Investigating infrastructure becomes a very important step in your due dilligence process, a simple enquiry to the Dial before you dig australia website 1100.com.au will provide you with water, electricity, sewerage information for free, get familiar with reading these types of plans and just ring the hotline for clarification of anything you don't understand.
 
Really interesting thread Jim, thanks. I'll be sure to do any sewerage investigations before buying then! I'll reply with a related question to your thread.

I've seen that community title vs torrens can sell very differently in different areas. For example in the Clovelly Park example, the 2x torrens titled ones were whipped up quickly whereas a site with 3 community titled properties lay vacant for ages.

Does it depend on the area? Are there any other downsides to community vs torrens titled?

Torrens- higher land area, fewer properties on one block. Yes? I don't believe there are strata-type fees for either but there is always an element of common land for community I thought?

Thanks for the info on finance Erica.

Cheers,
AndyM
 
As you can see with Jim's quotes above for torrens title vs community title subdivision, there are some risks for significant cost blow outs particuarly with infrastructure costs to SA water, this is where a surveyor is so crucial before you purchace land, Jim's subdivision requires a sewer main extension because there is no sewerage running along the street where the new block will be located.

Investigating infrastructure becomes a very important step in your due dilligence process, a simple enquiry to the Dial before you dig australia website 1100.com.au will provide you with water, electricity, sewerage information for free, get familiar with reading these types of plans and just ring the hotline for clarification of anything you don't understand.

Hey Erica,

With your battleaxe/hammerhead block, do you have to pay to have the sewer line/water line extended to the back block?

Thanks,
Andrew
 
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