Does it make sense to sub-divide for equity (but not actually divide...)

[jerrybee]

So if your land can be sub divided, and there's still a house on the property that you don't intend to demolish any time soon, does it make sense to get the necessary approvals and all the paperwork etc involved in sub dividing as a way to boost equity?

Or does this approval have an expiry if you don't actually chop up your land and knock down the house, so if you don't act on it within a certain time it becomes a waste of money?

 

[alexlee]

So if your land can be sub divided, and there's still a house on the property that you don't intend to demolish any time soon, does it make sense to get the necessary approvals and all the paperwork etc involved in sub dividing as a way to boost equity?

Or does this approval have an expiry if you don't actually chop up your land and knock down the house, so if you don't act on it within a certain time it becomes a waste of money?

Subdivision is a matter of title. There's no requirement that you must build separate dwellings on separate titles.

If you are able to subdivide, definitely a good idea because it'll increase value.

 

[Brady]

How do you plan to use this equity unless you have actually completed the sub division? It's all good and all to have approval but don't expect the banks to lend you money until it's actually divided.

 

[jerrybee]

How do you plan to use this equity unless you have actually completed the sub division? It's all good and all to have approval but don't expect the banks to lend you money until it's actually divided.

Oh ok, I figured the bank would value it more if you could show the sub division papers?

 

[Brady]

Oh ok, I figured the bank would value it more if you could show the sub division papers?

Once divided and valued yes.

They could value on the plans but until it actually happens don't expect cash/equity... because what would happen if you didn't do the division and the approval expired and then later wasn't granted?

 

[jerrybee]

Subdivision is a matter of title. There's no requirement that you must build separate dwellings on separate titles.

If you are able to subdivide, definitely a good idea because it'll increase value.

Ok sweet so it doesn't have an "expiry" date? Good to know. Also I regularly see properties referred to as having "DA", does "DA" = Development Approval? And is Development Approval just another word for sub division?

 

[jerrybee]

Once divided and valued yes.

They could value on the plans but until it actually happens don't expect cash/equity... because what would happen if you didn't do the division and the approval expired and then later wasn't granted?

Oh so it does have an expiry? That's what I was trying to figure out.

 

[wylie]

I would check with the local council involved.

I know for sure that for one of our houses, we could subdivide but the city plan was about to change, and we had a month to get it all rolling. After the plan changed (this was about ten years ago), the new plan meant we could no longer subdivide and sell the rear block, but had to get approval to build the house and subdivide, but we had to actually build the house before the subdivision would go through.

Had we looked at this six months prior, we probably would have split the block and sold off the back.

In Brisbane, things have changed again (probably a few times) but it all comes down to the rules at the time.

I'd take a trip to the local council and get it straight from the people who know the rules for the area you are looking at.

 

[Change of Plan]

Yes there is a time limit to complete the subdivision (in Victoria at least). Also (in Melbourne) you generally need to be able to produce lots of around 500sqm each if you want to just subdivide and not provide development plans. However, it is possible to subdivide without building by entering into a legal agreement (Section 173 Agreement) with the Council that the approved development will be built on the land later.

 

[BN6]

Sorry for the slight thread hijack but on a related topic, I have a question regarding subdivision vs dual/multiple occupancy.

If I had a block which was suitable to subdivide and put 3 2 bedroom units on, what are the pros/cons/considerations of building and having them all on one title but multiple occupancy or subdividing and having 3 titles?

As far as I can tell going the multiple occupancy way should:
- cost less than subdivision
- achieve the same rent

The biggest disadvantages I can see would be that you can't sell just one unit should you want to without first going through the subdivision process anyway, and the value would be lower. I understand this is why some investors make a relatively quick buck by buying properties on one title and subdividing them.

In contrast, going the subdivision path would let you sell off part of the project should you wish, achieve a higher total value of the project, while costing more and renting for the same amount.

Obviously any advice can only be general as different councils will have different regulations, but I would appreciate any input on the topic.

Thanks,
BN6

 

[bez23]

BN6,

No problem building multiple dwelling on 1 title if you got the cash to do so. However, the bank will not value it as high as if it is subdivided blocks. Hence slowing down your equity release to purchase more IPs.