Is this possible? Subdivision.

[hematite]

Hypothetical Situation:

I buy a 850 sqm block with a house at the front with 20% deposit. I split the block into two blocks (i.e. subdivide). I then loan against the rear plot and use the money to build a house on the rear plot. So I now have two houses on two plots and also two mortgages.

I then sell both and pay off loans and pocket any profit.

Is this possible? (Im pretty new to this as you can see)

 

[Aaron_C]

Yes....of course..

 

[tobe]

Welcome!

When you split the blocks, the front one will most likely be worth less than you paid for the 850sqm? So some of the debt will need to be transferred to the rear block, menaing you will have less equity in the rear block to loan for the build.

In real numbers. Buy for 400, loan for 320. split, front now worth 300, loan 240, back worth 200, loan now 120. get plans for the house valued at 350 for the rear, (cost 150 to build) can now lend 80% of rear or 280, minus existing debt of 120, leaving 160 for the build.

The real trick is, how do you estimate what each is worth before committing? How long will it take to get plans approved, builder to complete? What are the holding costs? Can you rent the front out while the bank is being built?

 

[hematite]

Welcome!

When you split the blocks, the front one will most likely be worth less than you paid for the 850sqm? So some of the debt will need to be transferred to the rear block, menaing you will have less equity in the rear block to loan for the build.

In real numbers. Buy for 400, loan for 320. split, front now worth 300, loan 240, back worth 200, loan now 120. get plans for the house valued at 350 for the rear, (cost 150 to build) can now lend 80% of rear or 280, minus existing debt of 120, leaving 160 for the build.

The real trick is, how do you estimate what each is worth before committing? How long will it take to get plans approved, builder to complete? What are the holding costs? Can you rent the front out while the bank is being built?

Thanks. I guess it comes down to how the valuer from the bank sees the value change after the subdivision.

Another problem is that this would be my first home, so I am not sure how it goes with the stamp duty exemption? I'd definitely live in the front house for 6 months to get the exemption, but not sure how they view subdivision.

And the key is how much an average 3x2 costs to build...

 

[INVSTOR]

And the key is how much an average 3x2 costs to build...

I would allow about $180,000 - $200,000. Keep in mind when you are building a house behind a house you are dealing with the development section of a building company rather than building a stock standard home. Long driveways can be expensive, sloping blocks, clay in soil, throw in some landscaping, fencing, aircon, etc. I'm sure Aaron could answer this question better though and possibly offer better prices!

 

[Aaron_C]

And the key is how much an average 3x2 costs to build...

How long is a piece of string? Impossible to answer as it depends on quality of the fittings, the amount of paving required etc etc. Let's just say that for a normal 'spec' home of 200 sqm you can probably get them to do it for about $200,000 but they are very rigid in what features you can put in and variations, no matter how small, will cost you a lot.

 

[matto_]

you could jump out of the deal at any number of points. the further in you go, the more parties you need to deal with etc.

 

[devo76]

Take the time you think it will take to complete. Double it

Take your expected Construction cost Add 10%
take the expected end value .drop it 10%
Allow $30,000 for sub costs
Probably throw another $20,000 in for stuff you haven't thought of.
If numbers still add up look further into it.

My experience anyway. Would I do it again..... Hell yeah

 

[jsoe]

What's the usual margin you'd be looking at in case of such subdivision? I was told by some developers/subdividers that you have to leave at least 20% margin otherwise the banks won't lend you construction loan, etc.? Thanks.

 

[INVSTOR]

I would allow about $180,000 - $200,000. Keep in mind when you are building a house behind a house you are dealing with the development section of a building company rather than building a stock standard home. Long driveways can be expensive, sloping blocks, clay in soil, throw in some landscaping, fencing, aircon, etc. I'm sure Aaron could answer this question better though and possibly offer better prices!

and my price above wasn't including subdivion costs. Add another $10,000 - $20,000.

 

[hematite]

So if a block is subdivided into 2 blocks, then the sub cost would be around 30-40k. What if you had potential to split into 3-4 blocks? Would the cost be significantly higher?

 

[LJW]

So if a block is subdivided into 2 blocks, then the sub cost would be around 30-40k. What if you had potential to split into 3-4 blocks? Would the cost be significantly higher?

Yes. Council charges infrastructure contributions for each additional lot. This varies with each Council area, but in Brisbane you are looking at 26k per additional lot. Then there are the costs of connecting each lot to water, sewer, electricity etc, so maybe another 15k-20k per lot for that (this obviously varies depending on the size of lots, location of infrastructure etc).

 

[jim1964]

Take the time you think it will take to complete. Double it

Take your expected Construction cost Add 10%
take the expected end value .drop it 10%
Allow $30,000 for sub costs
Probably throw another $20,000 in for stuff you haven't thought of.
If numbers still add up look further into it.

My experience anyway. Would I do it again..... Hell yeah

love your work.

 

[MTR]

Hypothetical Situation:

I buy a 850 sqm block with a house at the front with 20% deposit. I split the block into two blocks (i.e. subdivide). I then loan against the rear plot and use the money to build a house on the rear plot. So I now have two houses on two plots and also two mortgages.

I then sell both and pay off loans and pocket any profit.

Is this possible? (Im pretty new to this as you can see)

It can get better.... if you can build at the rear, revalue the rear property and almost double your equity and end up with cashflow positive properties overall then you can just keep doing these and no need to sell.

More about finding suitable property which will give you these numbers.

Cheers MTR

 

[jweg]

i've done this

Main drama I had was that when you sub-divide the bank initially insist that the new title remains on the mortgage.... My project was delayed by 18 months because I had to pay down an extra 25K off my original loan to get it released off the mortgage.

Not such a bad thing I guess... forced saving in a way, but sucks when you are itching to start building straight away.