Shall I buy an IP next to my IP?

We bought our last IP in December 09. It is a 3X1 old house on 692m2 block we renovated and rented out. When I visited our property last week, I surprisingly saw a FOR SALE sign in front of the property next to ours one. I rang RE agent and requested for inspection. It also needs renovation.
I knew that we did not have any saving or equity as we bought 3 IPs last year. I thought, I should check with my mortgage broker. She ordered valuation for our PPOR. With in 5 months, property price gone up by $60K and MB told me that we can buy that property as I can drawdown $40K for deposit of new purchase.
I am only interested in that property because it is next to our IP. It is also 3X1 an old house with 693m2 block size. Is it possible to merge two block and development for a 3rd property? Anybody have done like this before? If we get access (driveway) between two properties, there is enough land to build a house. Where can I get more info about this option.
Please see my IP in attached map.
Thanks.
 

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Check with your local town planner or development plan for the minimum frontages/areas and see how many houses you can get on there. You might find you can merge, knock the two houses down and build 3 or 4 (or more) units/townhouses/homettes sometime in the future when you've got the $$, either by subdividing, or doing strata title.

Or you might find that, like my area, you actually don't have enough space to do more than just have two houses, in which case - don't buy it!

As an example, I have my eye on what looks like an enormous corner block of land with tonnes of potential but it turns out it is a fraction short in both directions to do much of anything with (it is 43x42m and would need to be 45m in at least one direction to split further). In another council you could build at least 9 units on a block that size with that much street access - here you could do at most 3, which I have to say wouldn't stop me buying that block at the right price if I came into some money and then attempting to split it into 4 - because even 3 would turn a delightfully large profit :)

You really do need to know the EXACT regulations in your area, and even if you can develop the pair then you need the amount it would cost to do anything to see if it is worth while. Its aaaaaaaaaaaaaall about the profit margins.
 
Thanks RumpledElf . Before doing anything, I will contact town planner and findout whether I can merge 2 blocks and build 3-4 properties or not.
 
I split my block in two and I own the house next door by default now :D

Not *always* good to buy the neighbour's house though. My neighbour on the other side has an 11m wide block, and mine (like most on the street) is 14m wide. The minimum frontage for any new development here is 15m. If I tried to merge those two blocks the most I could build on them is ONE house - half as many as are already there!
 
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