Subdividing a corner block in Melbourne

K

KidsInheritance

Hi all,
Looking at purchasing a corner block that currently has a 3Bed BV on it.
One plan is to buy, subdivide, sell both rear block & house for a profit of around $40K gross after agents fees etc.
Other plan would be to still split up however either hold existing house or sell existing house & build new house on rear & hold.
I'm quite aware of the pro's & cons of new vs old re depreciation etc however hoping someone who has done this before can share any of their experiences / challenges using such a strategy.
Any input greatly appreciated.
 
If the lender knows you're intending on selling both then you'll most likely be looking at commercial finance. The profit margin isn't really that flash for commericial lenders IMO.

Regards
Steve
 
Bradsdad said:
If the lender knows you're intending on selling both then you'll most likely be looking at commercial finance. The profit margin isn't really that flash for commericial lenders IMO.

Regards
Steve
Click to expand...
Got to the point with the numbers that told me I was going to get little return for all the effort including comm' lend rates eating into the equation.:(
 
KI, I have rarely seen, in the past few years, a property in established areas in Melbourne, that you (ie non-builder) can purchase, subdivide immediately and make sufficient return relative to the risk and effort ie 20-30%

You need to hold for a few years before it can become viable.

It has become the de rigeur on SS by some and even REA when spruiking their sale to mention the future mountains of gold of immediate subdivision. The reality is surprisingly different. :rolleyes:

I purchased in Frankston a few years ago (3 unit site). Up until the start of 2010, I always thought that redevelopment was the best way forward. Now after renovating the house (still in progress) and self contained unit on the block, it will become a nice cash flow story. The total opposite to what I thought for most of the time since I had it. But when and if I sell it, no doubt the redevelopment potential will be emblazened for all amateur developers to flock to.

Your property choice may suit this option as an alternative?
 
Last edited:
buzzlightyear said:
KI, I have rarely seen, in the past few years, a property in established areas in Melbourne, that you (ie non-builder) can purchase, subdivide immediately and make sufficient return relative to the risk and effort ie 20-30%

You need to hold for a few years before it can become viable.

It has become the de rigeur on SS by some and even REA when spruiking their sale to mention the future mountains of gold of immediate subdivision. The reality is surprisingly different. :rolleyes:

I purchased in Frankston a few years ago (3 unit site). Up until the start of 2010, I always thought that redevelopment was the best way forward. Now after renovating the house (still in progress) and self contained unit on the block, it will become a nice cash flow story. The total opposite to what I thought for most of the time since I had it. But when and if I sell it, no doubt the redevelopment potential will be emblazened for all amateur developers to flock to.

Your property choice may suit this option as an alternative?
Click to expand...

Buzz,

Thanks for those insights - very interesting indeed. Can I ask whether there is presently 2 houses on the block - ie. the house under renovation and the self-contained unit? Assuming yes, then your original reason for purchase was to clear these two, and build three new units instead? Was it an increase in rents following (the ongoing) renovation of the house which occasioned your change of strategy?

Regards,
Greg
 
How would placing a relocatable home on the back half, renovating and accessing equity work for you, El?

Relocatable home costs $50K-$80K plumbed in with new roof etc. Most companies only sell homes in good condition these days, minimal reno would probably apply.

I havent used this strategy myself, have been looking into it as I have found limited profit in subs after purchase as Buzz mentioned. (Negotiating on a sub at the moment with $65K clear profit, not corner block)

Maybe someone on here could advise on Pro's and Con's of relocatable for you. It would provide very good rental return as well.
 
LPP said:
How would placing a relocatable home on the back half, renovating and accessing equity work for you, El?

Relocatable home costs $50K-$80K plumbed in with new roof etc. Most companies only sell homes in good condition these days, minimal reno would probably apply.

I havent used this strategy myself, have been looking into it as I have found limited profit in subs after purchase as Buzz mentioned. (Negotiating on a sub at the moment with $65K clear profit, not corner block)

Maybe someone on here could advise on Pro's and Con's of relocatable for you. It would provide very good rental return as well.
Click to expand...

LPP,

I had never entertained this idea. Ceteris paribus, it appears to make sense, hence it is worthy of further investigation. Anybody else done this?
 
el caballo said:
...Can I ask whether there is presently 2 houses on the block - ie. the house under renovation and the self-contained unit?
Click to expand...

Yes, this is unchanged since I purchased.

el caballo said:
Assuming yes, then your original reason for purchase was to clear these two, and build three new units instead?
Click to expand...

Yes. Next door is the same block and was building 3 units when I purchased, so anything other than redevelopment was not on the radar.

el caballo said:
Was it an increase in rents following (the ongoing) renovation of the house which occasioned your change of strategy?
Click to expand...

After finishing the reno for the SCU, the rent increased from $160 to $215pw. It was only then, that I realised I could achieve a similar increase for the 4br house.

Taking the current reno costs into account, existing loan and expected rent it will be marginally cash flow positive after tax. However and increase in interest rates of 0.5% (assuming 2 x 0.25% increases this year) would take it negative by approx $39pw.

Compared to what is was pre-reno, that is a significant improvement.

The other factor that has changed is my overall strategy to start investing in better cash flow investments. So, for me at this stage, simple resi buy and hold is off the agenda and with it development. I have done enough renovating to last me a while recently and am building two properties this year. So my focus will be on investing in a business venture that I am putting together and a possible commercial property. Well, more like one thing at a time, not all at once.
 
Hi Everyone,

I just signed up to this forum and hope I can be of some help. If you decide to go down the subdivision path I recommend speaking to a town planner / building designer to see if a) it is worth doing and b) a rough idea of what costs would be involved in doing so. In my experience with subdivision, there is generally a very fast return on your investment which is why so many people are going down this path.

I have lots of information (pdf's, checklists etc) on the subject which I am quite happy to forward on to anyone if needed.

Cheers,
Ashley Stacey
 
Bradsdad said:
If the lender knows you're intending on selling both then you'll most likely be looking at commercial finance. The profit margin isn't really that flash for commericial lenders IMO.

Regards
Steve
Click to expand...
This is true, best bet is to hold one portion of the subdivision and sell after 12 months. Your broker may be a little bit pi**ed after the lenders claw back though. Best to let them know so they can source funds from a non clawback lender (there's only a few around).

In my opinion, $40K gross profit isn't the best you can get doing this type of strategy. There should be much higher yielding areas where the end value should far exceed this figure. I'm not about to rattle off suburb lists but everyone would have read all about the frankston north area and all those on the bandwagon.

Keep looking - or change the strategy to build and hold for close to neutrally geared till the market picks up again. This strategy would keep your broker happy too as you could retain some debt (after sale of existing prop) apportioned to the block, and borrow against the existing loan again to construct.

Just my thoughts
 
Stacey Survey said:
Hi Everyone,

I just signed up to this forum and hope I can be of some help. If you decide to go down the subdivision path I recommend speaking to a town planner / building designer to see if a) it is worth doing and b) a rough idea of what costs would be involved in doing so. In my experience with subdivision, there is generally a very fast return on your investment which is why so many people are going down this path.

I have lots of information (pdf's, checklists etc) on the subject which I am quite happy to forward on to anyone if needed.

Cheers,
Ashley Stacey
Click to expand...

Hi Ashley,

Just reading the forums and i would love to be able to read the PDF's that you have, i am in the Glen Eira Council and email address is [email protected].

Cheers - would be a great help

Alan
 
40k profit sounds quite little. A few unexpected errors could exhaust all your profit. Make sure you have your feasibility worked out thoroughly, have you taken into account 5% open space contribution payable at most Councils when you subdivide? Also get tax advice on GST
 
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