homework on propert with subdividion potential

Discussion in 'Adding Value' started by jsoe, 21st Jan, 2011.

  1. jsoe

    jsoe curious and keen to learn

    Joined:
    12th Oct, 2010
    Messages:
    206
    Location:
    Sydney NSW
    *homework on property with subdivision potential*

    Hi all,
    We're going to have a look at a property on a large block about 900sqm tomorrow. It has the appropriate zoning for dual-occ or multiple dwelling building. It has 2 street frontages as it's a corner block, pretty level - not on a hill.

    Sounds pretty awesome, right? But it's been on the market for 5 weeks and there hasn't been a bidding war; but just 2 bidders didn't follow through for finance reasons. The existing house is a bit run down and needs some fixing in the bathroom and living room. It was occupied by an old mother who's in hospital now and the son's selling the house. So, it's vacant.

    What sort of things should be on my checklist before I put in an offer? My intention is to subdivide the land at the back to sell it off in a couple of year's time (with or without a new house). Lack of bidding and slow moving makes me concern. Please share your thoughts.
    Thanks heaps!
     
  2. wobbycarly

    wobbycarly Carpe domus

    Joined:
    21st Mar, 2009
    Messages:
    2,898
    Media:
    24
    Location:
    Geelong, Vic
    Can't help you with the homework (easements is probably the biggy?), but maybe others haven't seen the potential you have! The lack of other successful purchasers will probably work in your favour during the negotiating.
     
  3. jsoe

    jsoe curious and keen to learn

    Joined:
    12th Oct, 2010
    Messages:
    206
    Location:
    Sydney NSW
    what exactly is the "easement"? bear with me please. I'm a starter.
     
  4. wobbycarly

    wobbycarly Carpe domus

    Joined:
    21st Mar, 2009
    Messages:
    2,898
    Media:
    24
    Location:
    Geelong, Vic
    The section of the block over which you may not build any permanent structure due to being reserved for access to water mains, etc.
     
  5. Jacque

    Jacque Buyers Agent and Bookworm

    Joined:
    5th Jul, 2001
    Messages:
    4,618
    Media:
    39
    Location:
    Sydney
    1. Get your conveyancer to look over the contract to check for issues such as easements, restrictions on the use of land (covenants) and zoning (flood, fire etc).

    2. Contact appropriate council to see if your block meets current requirements for subdivision and dual occupancy. They will not provide you with a definitive answer until you are the owner and have lodged a DA but will be able to point you in the right direction eg: town planner, surveyor.

    3. Ask yourself why other developers haven't bought the block so far if the numbers work- the old "finance fell over" excuse could be just that. Remember that small development projects aren't always profitable and you do need to consider ALL your costs and add min 10% for contingencies.

    Best of luck.
     
  6. twodogs

    twodogs Member

    Joined:
    10th Apr, 2003
    Messages:
    749
    Media:
    2
    Location:
    Sydney
    If you are not sure about easements, then there will be plenty more that you will not know. Ask a pro for help. A local surveyor or town planner may be able to give a development assessment (for a fee). They know not only the local rules, but more than most of us amateurs will ever know about a sub-division.

    You could ask the council, but that's a can of worms.

    Do you have sewer diagram or site plan? Post it along with the council and some of the budding developers of the forum may be able to advise.
     
  7. jsoe

    jsoe curious and keen to learn

    Joined:
    12th Oct, 2010
    Messages:
    206
    Location:
    Sydney NSW
    I'll definitely approach a town planner / surveyer.
    We're still looking to buy a block with subdivision potential so we don't have detailed diagrams. I've requested a few from Dial Before You Dig website though.
     
  8. Jindaro

    Jindaro Member

    Joined:
    11th Aug, 2005
    Messages:
    262
    Media:
    2
    Location:
    Lalor Park, Sydney
    Stormwater

    Which way does the block slope? If it slopes away from the street, you might not be able to drain the stormwater from the duplex. Check Council's requirements first. If it slopes to the street, you're fine.
     
  9. Annietom

    Annietom Member

    Joined:
    25th Sep, 2008
    Messages:
    66
    Location:
    Sunny Melb
    Check:
    - council for dual occ permit potential (& heritage issues)
    - land surveyor for drainage & sewer feasibility
    - Solicitor/conveyancer for title issues (eg. easement)
    - other properties in the area dual occ'd properties (eg. are there buyers for your kind of development)

    then do the figures:
    - what will you buy it at (best and worst figure)
    - buying/selling costs (eg. stamp duty on purchase, agents selling fees)
    - subdivision costs (I'd allow $20K, but it's probably $15K)
    - Reno costs, new build costs, site costs, decorating costs
    THEN
    add all the above together AND add 15% contingency
    = TOTAL COST

    THEN look around the area, what would your end properties sell for (best and worst price) (real estate agent may be helpful with this) (remember to put about 10% growth from today "CPI") = TOTAL INCOME

    THEN deduct TOTAL COST from TOTAL INCOME to get your GROSS PROFIT. If you end up with a good 20% GROSS PROFIT on your worst case scenario, AND all the above people you speak with think it's ok (eg. conveyancer, council) then I'd go for it!!!

    ALSO, I don't know the area, but if it's not a popular area, like rural, it may take a while to sell. In prop development, time is money.

    GOOD LUCK!
     
  10. starbright

    starbright Member

    Joined:
    9th Nov, 2010
    Messages:
    29
    Location:
    Sydney, NSW
    Does everyone also add 10% to projected income? Do you think that's still appropriate given a softer market today? Maybe that's why my feasibilities don't stack up :confused:

    That's half your target return if prices don't go up 10%.......
     
  11. Annietom

    Annietom Member

    Joined:
    25th Sep, 2008
    Messages:
    66
    Location:
    Sunny Melb
    I agree starbright, but at the end of the day you should look at worst case scenario (no CPI) and good return, with CPI. Only if worst case scenario still shows a good profit would I go ahead. Sometimes in developing, you are going to take a chance, but it's still nice to know that your worst case scenario won't run you into a loss.