Is subdividing a block of land in Frankston financially beneficial ATM?

[The_Bludger]

I own a house on a corner block(about 650 sqm) in Frankston . House sits at the front of the block(3 bedder 1 bathroom), which leaves the back ripe for subdivision. Would splitting the property in two and then selling both seperately be financially beneficial? Current block with house on it is valued at about $420K. After costs, effort, etc, I'm wondering whether this is a worthwhile exercise. If I do head down this path, it probably means I might stuff up any builder's plans they had for the property if they were to buy as is now.

Also, for those familiar with the area(around the Foot street shops beach side), what sort of dollars could I expect for each of the "blocks" if I was to head down this path and sell of individually? One with a house, the other a vacant block.

Your thoughts?

 

[Lord Shanghai]

Your profitability will depend on what you originally paid for the property, rather than what the property is worth now. If your original entry costs were excessive, that will mean you will have less profits when your units are built and someday sold.

Someone mentioned the fact elsewhere about never paying more than the LQ Median price when buying older houses in Frankston. It makes sense to me. The money is made in buying right.

 

[The_Bludger]

Thanks for the reply, but I'm not asking about profit. What I am asking is whether subdividing would get me a higher selling price for both properties sold separately as opposed to selling "as is" as a single block currently.

 

[Brady]

Are there any compareable sales? I would think that would of happened already and if it hasn't probably because it's not viable.

 

[Truly Exotic]

Thanks for the reply, but I'm not asking about profit. What I am asking is whether subdividing would get me a higher selling price for both properties sold separately as opposed to selling "as is" as a single block currently.

yes of course, you pay more per sqm the smaller the block is (generally speaking), you get economies of scale ie a discount for buying larger blocks

 

[albanga]

Thanks for the reply, but I'm not asking about profit. What I am asking is whether subdividing would get me a higher selling price for both properties sold separately as opposed to selling "as is" as a single block currently.

Absolutely it would be worth more to subdivide the properties and sell them off separately. Perfect example is my block ATM that I have DA approval for. I recently had the property valued by a valuer which came in at 610k, I believe market value is around 650k.

I then got in a real estate agent to quote on the subdivided properties and the vacant land has come in at 270-300k and the existing block around 500k.

So market value is around 100-150k better for 2 lots as opposed to 1. Now there are cost considerations to get the land subdivided, but even if you say that is 30k, you are still far far better off.

 

[tristanvs]

Absolutely it would be worth more to subdivide the properties and sell them off separately. Perfect example is my block ATM that I have DA approval for. I recently had the property valued by a valuer which came in at 610k, I believe market value is around 650k.

If the valuer valued the property at 610K why would you believe the value is $40K more at $650K?

 

[alicudi]

Hi

I know the Foot Street shops area very well.

If your site is on the beach side of Foot Street you are going to fetch considerably more than selling the site as a single piece of land. Small lot sizes on the beach side of Foot Street are highly desirable at the moment if you speak to the local agents as people like to own funky townhouses in that part of Frankston.

If your site is on the inland side of Foot Street I would hold onto it a little longer as it does have a little way to go in terms of capital gains.

And if you purchased this site many years ago well you have just made a pretty penny regardless of which side of Foot Street your property is on. If you have only purchased it recently and the site is on the inland side of Foot Street I think you should hold onto it a bit longer.

I would guess that the rear block would sell for well over $200,000 in this area and I couldn't comment on how much the house would sell for on its own without a full description or address but maybe around the $375,000 figure but I could be totally wrong. If you did a reno on this house and added a double garage if possible you may get a fortune for it especially if you build a townhouse on the rear block.

The above is only my personal opinion based on investing in this area for the past 22 years.

Regards,

alicudi

 

[albanga]

If the valuer valued the property at 610K why would you believe the value is $40K more at $650K?

This is because bank valuations are very conservative.
They need to look at the property as if it were distressed such as you were unable to make payments and they had to make a quick sale.

There are also the comparable market sales which you can use to gauge market value.

If you plan on using the equity in a property then you need to consider that how much YOU think you have is not what the bank says you have.

 

[tristanvs]

This is because bank valuations are very conservative.
They need to look at the property as if it were distressed such as you were unable to make payments and they had to make a quick sale.

There are also the comparable market sales which you can use to gauge market value.

If you plan on using the equity in a property then you need to consider that how much YOU think you have is not what the bank says you have.

A bank valuation for mortgage security purposes or refinancing values the property at market value as inspected on the date of valuation. The valuation is based on the state of the property on day of inspection and the valuer does not take into consideration a distressed property and quick sale. The valuer will use comparable sales to find the market value.

The valuer would give a value range and take into consideration a distressed property is the bank had instructed them to carry out a Mortgagee in Possession valuation.

I reiterate the bank valuation is at market value and therefore not conservative, most of the time the owners have an emotional attachment to the property or are overly optimistic and think the property is worth more than what a expert valuer has said.

 

[tristanvs]

If you plan on using the equity in a property then you need to consider that how much YOU think you have is not what the bank says you have.

How do you use the equity without a bank financing it? Because the bank is only going to lend you based on the equity it says you have not what you think it has.

 

[devank]

I own a house on a corner block(about 650 sqm) in Frankston.

What is the min size for a lot in this area?

 

[Lord Shanghai]

What is the min size for a lot in this area?

Around 600sqm is the cutoff, although they do allow a measure of leniency in some of the less attractive areas. eg. Frankston North is more easy than Frankston South.

According to Grand Dad, a former VGO employee:

- 2% of Melb houses are on development sized blocks
- 40% of Frankston and Seaford houses are on development sized subdivisible blocks.

Don't take my word for any of the above. Do your own due iligence and check with the VGO and Frankston Council.

 

[albanga]

How do you use the equity without a bank financing it? Because the bank is only going to lend you based on the equity it says you have not what you think it has.

Sorry I was not clear here and by no means am I an investing expert but from reading forums and going off personal experiences with friends. A common mistake seems to be I suppose amateur investors who believe they have X market value in equity to draw but in essence the bank say they really only have Y which leaves them short. Moral of that storey being if you plan on using equity do not obviously rely on what YOU think it may be worth because as you say that Could be emotional.

But in regards to the bank valuation below market I am not in the industry so you may well be more educated to talk about this but from every piece of reading I have done it says the bank valuation is conservative to market value as they need to cover risk. For example I know my property would sell for 650k, y? Well because 2 almost identical homes in my street sold for over 665k. So if anything I am being conservative on my 650k and no way emotional as to be honest I live in an old neigborhood where the properties are bought to simply knock down and subdivide.

But again I am still very much in learning stage so really keen to hear some of the brokers thoughts on this?

Just FYI I googled bank valuations and looked at most of the big banks and they all make comment that they value conservative to cover risk for quick sale.

 

[eggnog]

If only subdivisions were as cheap as 30k in brizzy