IP in Kelmscott, Perth - subdivide and sell lands or subdivide and build?

Hi guys

This is my first post on this forum, and also my first to develop my IP, but I simply not sure which is my best option.

Here is my case. I have a R25/40 block of land in Kelmscott sized 1012 sqm with an existing house at the front. I have checked with builder and I can build two 3x2 at the back while retaining the front house. However my funds are limited so I was planning to sell off the front house first so that I can gather enough funds to develop two houses at the back at the same time (My funds while holding the front house can only support one house development and I can use the funds for just 15 months only).

And here are my options:

1. Develop two houses at the back, renting out the front house during the process, and sell all three houses in 15 months (recommended by builder)
My builder recommended the following process:
  1. 1. Apply Build Strata and building permit from council - around 6 months
  2. 2. After 6 months, start the construction
  3. 3. After all bricks work completed, lodge application of subdivision to WAPC and wait for 3-6 months, but construction is still under progress at the same time such as roofing, paving, etc.
  4. 4. Continue construction
  5. 5. After 3 months, WAPC issued conditional approval for subdivision when the entire construction is almost completed
  6. 6. Completed the required conditions requested by WAPC such as carpets, cloth lines, landscaping, etc.
  7. 7. Obtain all required clearances and lodge to WAPC for final approval, and wait for Landgate to issue individual Survey Strata titles for all three lots.
  8. 8. Sell all three houses

The entire process is around 15 months in total.

The builder explains that this is the most cost effective and quickest way to build and subdivide, HOWEVER, they need to see I have enough funds to cover the entire construction before they begin a single thing... which I don't have until I can sell the front house first. Estimated ROI: 25%

2. Subdivide first, and then build
Second option is I engage a surveyor to apply the subdivision for the block first, which will cost me around $50K each for the two back lots for power, water, sewage, etc, and may be $10K for the front existing house for power, sewage, carports and driveway. This will take around 6 months until WAPC conditionally approved and another 1 or 2 months to obtain the Survey Strata titles for each lots.

While waiting for WAPC first conditional approval, I engaged builder to draft up all the drawings for the rear houses.

Once titles have been issued, I can then consider one of the following option:

1. Sell the front house and recover enough funds to show the builder so that they can begin the the process - building permits from council, construction, etc. This will take another 12 to 14 months. The entire process will take roughly 18 months

2. Sell the front house, and sell the rear two blocks together with the drawings only. This way make less profit, but less work, less overheads cost, and it just takes less than one year (8 months to subdivide, assuming 3 months to sell all three) to recover all money and begin with another project.
Less than a year for whole process ROI: 22%

Any ideas or suggestion for what I should do? This is my very first project and I prepared to learn things from it while still hoping to make some profit out from it.


Thank you all.

Regards

Dennis
 
Hi dennis

A couple of things:

- kelmscott could = clay which will = $$$. A soil test will give you a better understanding of what class site you have

- What are the requirements from council to get the r40 bonus zoning? You will find this in the councils tps.

- Retaining existing house- council may require it to be demolished to het the r40? Or upgraded to a new standard. And council wont allow the subdivision until upgrades etc have been completed. So all worth checking out if you havnt already.

If you have the funds to subdivide first, then by revaluing the blocks after will give you access to equity to use for the builds? And sell existing house if you want. Takes longer but looks like your only option if you dont have the funds now
 
Hi dennis

A couple of things:

- kelmscott could = clay which will = $$$. A soil test will give you a better understanding of what class site you have

- What are the requirements from council to get the r40 bonus zoning? You will find this in the councils tps.

- Retaining existing house- council may require it to be demolished to het the r40? Or upgraded to a new standard. And council wont allow the subdivision until upgrades etc have been completed. So all worth checking out if you havnt already.

If you have the funds to subdivide first, then by revaluing the blocks after will give you access to equity to use for the builds? And sell existing house if you want. Takes longer but looks like your only option if you dont have the funds now

Thanks for your reply. My builder has contact the local council and they haven't mentioned anything about the requirement but they did mention if we want to build more than three houses on the block, one of them must be two storey.
 
The first thing I would do is take a serious look at what is happening in Kelmscott today, how much stock on the market? How long is it taking to sell?

Are your figures real??? Various markets in Perth are starting to change, what if you can not sell at estimated price? Can you hold?? will it be cash flow positive?

As you have cash flow issues I would only consider selling the land as I expect you have the funds to progress this and its a quick turnover, that is if the figures stack up and whether there is demand for this product in this area. If its a goer then you need to determine what land component is flying out the door and meet this market

Just my 2 cents worth
 
Just so you know, split codings in Armadale require an APPROVED DA in place before the WAPC can allow the subdivision at an upper coding. Found this out the hard way just recently with another forum member @ 88days...

I dont know how far forward your existing house is on your lot ao unsure if you are going for straight R25 or requiring a mix to make the sub plan happen.
 
Coming from a similar background. I would triple check you can even do the options that you are considering. Talk to council, independent town planner, people in this forum. I've been recently in a position where I had a bunch of options and none of them would work and its 1 year later and I'm $40,000 lighter.

I would also consider holding on to the land until you have enough to develop. Not what you probably want to hear.

Hope things work out for you.

Dave
 
Dave
Good advice, if one does not have the cash then best to play it safe, land bank, otherwise it will be a world of pain.

MTR:)
 
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