Refinancing & Subdividing - Advice Needed

[Campbell]

G'day! Usual story, long time lurker now looking to trouble the more knowledgeable for advice.
I do have a very helpful broker who facilitated my initial home loan but I value the opinions and experience of a broader group.
Hopefully I can give something back to the forum by documenting my progress as I go.

My Situation
Current Property (First Home): Originally PPOR, now renovated and awaiting tenancy.
The property is 1000sqm (400m from Beach) Frontal Position 4x1 B&T (1960's). As mentioned I've done some minor renovations to make it more liveable; flooring, painting, HWS, new kitchen cabinets, smokies, lighting & retic. The backyard is empty save a peppy tree, chook run, small garden shed & vegie patch. House is very small. Driveway accesses backyard. The block is R20 Zoned. The entire rear 500sqm is raised 3ft.

This property was purchased with the intention of eventual subdivision. Purchase price ~$400k (FHOG) mortgaged through Keystart. Currently owe ~$350k and am ready to refinance. Looking for some advice as to the best course of action regarding both financial restructuring and subsequent development of the property. As I understand it I'll be copping some LMI upon refinancing, this doesn't concern me as I have some cash to cover this. I've been researching IO Loans with offset accounts as the likely trick.

Other than this project I currently have no other investments, debts or major financial obligations (wife, kids, etc..).
My short term plan is generating the most benefit (equity wise) from this particular development in order to finance further investments.

As I see it my options include:

Subdivide. Sell the rear block (~$180k). Rent existing house/front block as is (~$320pw)
Subdivide. Sell the rear block. Demolish & Develop front block. (Keep as IP)
Subdivide. Borrow sh*tloads. Demolish then develop both blocks. Keep both? Sell both? Keep one?

Comments? Queries? What would you do? What wouldn't you do?
Thank you in advance, I appreciate any assistance.

 

[Rolf Latham]

This property was purchased with the intention of eventual subdivision. Purchase price ~$400k (FHOG) mortgaged through Keystart. Currently owe ~$350k and am ready to refinance.

Keystart will want u out of there as fast as possible.

Just cleaned up one of their PPOR to IP

In general, I believe you need a busload more input to see where you want to being x years time, and what finance structures may facilitate that.

Your current questioning appears to be looking to "defluff" your current thinking.

While the forum is good for general idealogy and advice, only your DNA and risk profile etc works for your needs.

ta
rolf

 

[matto_]

As Rolf points out - each of the options you have laid out have their pros and cons. - least of which is the profit margin you would obtain from each of the subsequent steps in the chain.

All depends on how you see this element within your overall portfolio/plan.

 

[Fourex]

I agree more imput needed.

How much are all the fees to subdivide (council, surveyor, contributions).
Are you looking at building a house or duplex on the rear lot?
If it is a duplex is it better not to subdivide and make into a unit complex (front house being unit 1 and duplex 2 + 3).
What is your end game plan, turn a quick profit or something to hold onto?
How long will it take to subdivide and can your cash flow cover the wait until you either sell the block or do the build?

Fourex.

 

[Campbell]

The block is R20 zoned. According to the council something that's not going to change anytime soon. Thus the subdivision will yield 2x approx 500sqm blocks. The area is Warnbro/Waikiki beach.
The front half of the block contains the existing 4x1, the rear half of the block has (to my knowledge) the potential for any single dwelling to be built (ie, no duplex, no mulitple units). A near identical block diagonally opposite mine was recently divided and two single level 4x2's were constructed.

I am in my late 20's and have a reasonably high income ($170k+) in a stable job (no, I'm not "on the mines"). So yes, I believe I have sufficient cash flow to cover necessary finance on a well planned subdivision development.

I have an accountant and a mortgage broker advising me but I'm also educating myself on some of the various investment methods I can use. As I'm sure most will atest it's a pretty complex game!
Game plan? That's what I'm working on! In the short term developing this intitial property in a way that will be of most benefit in financing further investments. Learning as much as I can about the process along the way. Hence trawling through this forum and spending far too much of my spare time on the ATO website revisiting concepts I've done my best to forget since yr12 accounting & economics...

 

[matto_]

The strategy you are taking about will yield a couple of key benefits.

Iam making assumptions here, and without further data, ie build costs projected rent, will continue.

Higher yield from current site.as now you have two rents. Well help with serviceability.

Increased capital/equity, assuming your build cost plus your current costs are higher than the end call. Which helps your equity situation.

 

[westminster]

G'day! Usual story, long time lurker now looking to trouble the more knowledgeable for advice.

As I see it my options include:

Subdivide. Sell the rear block (~$180k). Rent existing house/front block as is (~$320pw)
Subdivide. Sell the rear block. Demolish & Develop front block. (Keep as IP)
Subdivide. Borrow sh*tloads. Demolish then develop both blocks. Keep both? Sell both? Keep one?

Comments? Queries? What would you do? What wouldn't you do?
Thank you in advance, I appreciate any assistance.

Where do you live now? In a rental?

I think there might be a 4th option. The accountant boffins might be able to advise if I'm talking out of school

1. you rent out front house (front house still has PPOR status)
2. Increase/add a new loan to construct on rear
3. Build house on rear block
4. Subdivide under Built Strata laws
5. You move into rear block/house
6. Sell front house with no CGT as it was your PPOR

5 & 6 have to happen around same time as you can't have 2 PPOR.

Use funds from selling front house to buy another IP

 

[Campbell]

I recently moved from the house in question and currently rent one of my folks IP's.

Thank you for the suggestions Westminster. I'll look into the built strata scenario, not something I'm full bottle on. I don't see an issue with viability.

Reading up on CGT at the moment...
The property was purchased for ~$400k, in this (dumbed down) scenario the property was then subdivided. For arguments sake each half is then worth $200k (the current house on the front block really is worth bugger all, as previously mentioned 40+yo)...
Now regardless of PPOR status the front block hasn't +/- any significant value and therefore CGT would be non-exsistant/negligible anyway?
Also can you please elaborate on what benefits me by moving into the newly constructed house on the rear block as opposed to renting it out immediately?

Thanks again. I'm sure I've probably missed a very basic concept here, nightshift will do that to ya.