Sub-dividing to build second dwelling

Ok, I have an IP in Frankston North which is on 680m2. There is adequate room to build a 3br unit at the back. There is an inground swimming pool (which has been filled in but not completely removed), I've made an enquiry as to whether I can build on it.

My question is, is it a smart option to build on the back to sell the original property and to hold the new property as a rental?

My calculations are the costing of the original property (pre subdivision) is $310k, I estimate building costs, conservatively, to be $200k, so if I sell the original dwelling for $350k it'll leave me with a brand new 3br unit with a mortgage of $160k with a weekly rent of $300, thus cashflow +.

Although it will be fantastic from a cashflow perspective and may enable me to purchase a second IP (which again would be subdividable), is it good as a long term investment or should I just forget it and just let it sit there?

If I subdivide this first IP and sell 1 of the dwellings, I could theoretically continue to invest in this manner, ensuring all my IPs are cashflow positive.

Am I looking at this too simplistically? Is my theory sound?
The benefit of keeping the new dwelling rather than the original one is the depreciation.

When did you buy the front house? What makes you think it is worth an extra $40k with the back yard chopped off? What would the property sell for now as is?

We are doing the same thing at the moment with one of ours. Before you go too far down the track, check with your local council. Mine had to be over 700m2, in a core area (within a certain distance from shops etc) and we couldn't subdivide until the second dwelling was built, also the car from the second dwelling (that was required to have covered car accomodation for one car and at least one visitor space) had to be able to drive out of the driveway forwards, so there had to be enough room for a turning circle from the garage. Another on in QLD was nearly as many rules and regs. Your front house, unless you are undergoing extensive renovations will be worth a little less with another house in the backyard.
Gools, I bought the property in February, when I say it cost me $310k, that includes all costings, I actually purchased it for $280k. There are plenty of 3br places going onto the market for $330k+ and I would expect to present it far better, perhaps even rendered/bagged which may tweek emotional values to some people. Also, the way the values have been climbing in the area, by year's end, when the 2nd dwelling may possibly be ready (for arguments sake) it could definitely be $350k but obviously I don't have a crystal ball.

Thank you both for your suggestions, it's definitely opened up my thoughts. I have no issues from a tax perspective (I'm an accountant) but it's the actual process. Once I do the first, I'll become addicted! :D

Who knows, I may even decide to keep both properties and rent them out, rent on the second dwelling will be pretty much cashflow + so there shouldn't be any further costs to maintain out of our own pockets and if we hold the properties for 12 months we'll get CGT discount - of course so long as the intention is to earn revenue on the rent and not to earn a profit on the dwellings.
Hmmm, I would think if the CG for the future looks bright, then keep it.
If however, your money can be better used in another area, then move it.

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