Subdivision finance and other ROI options

[Lacasa]

Cockburn council in Perth, are in the process of re-zoning Coolbellup, and it looks like my block is going from R20 to R40 .

I built a new house last year on the block, but left enough room for the planned future subdivision, as I was aware the area was probably going to be re-zoned. My question is what option below, would you take given my current circumstance:

PPOR, is the new house on the sub-divisible block ? Current value approx 550k, owing 400k. The future rear-block value should be in the region of 225-250k

IP 1 ? Value 600k owing 200k- rents for $375 week - CF+

IP 2 ? Value 750k owing 480k ? rents for $725 week - CF neutral

Current income 110k per annum - two credit cards 13k (no debt owing), no other liabilities.


Option 1:

I estimate the cost of subdividing and build a new house to be around 300k (house for around 250k, subdivision cost up to 50k), with a resale value of 550k to 600k. So a potential profit in the range of 250-300k.

There would be a capital gain tax on that but having had a few bad years on the share market I could offset all of that CGT on my past share losses.

This option would require borrowing 300k - if that is even possible given current debt on existing mortgages?

Option 2:

Subdividing the block, with a cost of 30-50k, sell the block for approx. 225-250k, so potential profit of around 200k ? no new loan required. CGT offset again by capital loss of shares.

With option 1 and 2, I was thinking I should pay down loan on PPOR to reduce my non-deductible debt.

Obviously, looking at these two options the profit seems to favor option 1, if I could get another loan, but I might be missing something?

Option 3:

Borrow 300k and build a new house and rent it out. According to my calculations it should be cash flow positive to the tune of around $300-500 a month depending on the final rent returns, interest rate on loan, build price and subdivision cost.

 

[Brady]

You need to run the numbers with more detail, then I would go with the option that nets you the most profit.

Few things to consider, holdings costs, saleability of the land v complete product, extra costs to complete the construction/sub divison, taxation and financing the deal.

Finance I don't see an issue in your ability to borrow the funds. But would suggest setting in place plans on how to borrow the money so can be done in the right order. Can be a few little tricks to help with ease of funds along the way.

 

[thatbum]

Those numbers for option one seem a bit optimistic. 550k to 600k for a half rear lot 4x2 in coobie? Its hard to say, since there aren't really any comparables, but I'm not so confident.

 

[Shahin_Afarin]

Go to 80% LVR on IP's 1 and 2 and do an equity release.

With the PPOR and the new build - they are currently sitting on one title, is your estimate of $550,000 based on a single dwelling or both dwellings on the title? Have you done a valuation to see what the value of the property is since building the new dwelling?

 

[Lacasa]

TheFinanceShop

Go to 80% LVR on IP's 1 and 2 and do an equity release.

With the PPOR and the new build - they are currently sitting on one title, is your estimate of $550,000 based on a single dwelling or both dwellings on the title? Have you done a valuation to see what the value of the property is since building the new dwelling?

My estimate is based on the current block with on one existing dwelling (my PPOR) valued at approx 550k, once zoning changes I will revalue the house and land. I expect if I go down the subdivision route that the back block will be worth around 225-250k if sold. Good to know that getting finance to build on the rear should be achievable.

thatbum Those numbers for option one seem a bit optimistic. 550k to 600k for a half rear lot 4x2 in coobie? Its hard to say, since there aren't really any comparables, but I'm not so confident.

Like you say hard to value a 4x2 in coobiaco as there is not much to compare with. But the new development just around the corner is selling 3x2 for 525k on small lot sizes than my future subdivision so I would expect at least $550 to be achieved - given the future redevelopment of the old pub and shopping centre, growth for all of coolbie looks good into the future.