Subdivision first or Dual Occ ? Pros and Cons

[evshaun]

Can someone explain the pros and cons of Subdividing first vs Building or building dual occ and then subdividing at a later stage?

We were under the impression that it was better to build first and then subdivide at a later stage, but one of the project builders we talked to today suggested, that it would be better to subdivide the land and then build, as you wouldn't have to go get planning permits to build once the land has been subdivided? Is that right?

 

[Change of Plan]

Hi Evshaun,

It depends on the size of your property, in Victoria anyway. While it would be easier to just subdivide and then build later without a planning permit most councils have a minimum under which they will not consider a subdivision without building plans. These building plans will be tied to the land as what can be built. For example in Kingston cc their minimum is 500sqm (for each new lot) and under that you will need to do a full planning application for development. Now, you can subdivide without building, but the council will most probably request a legal agreement (section 173) to tie the approved development to the new titles. So, depending on the size of your land it is worth asking the question of the council as to whether they would consider just a subdivision without building plans. If so then it is definitely easier and there are less restrictions for choosing the house.

Regards,

 

[evisional]

I subdivide land before construction. Reasons:

Subdivide first ——

*If you do subdivide the bank will issue a new loan for each subdivision, ie if you have 3 titles = 3 separate mortgage/loans, all done within it’s own merits ( own LVR, valuation )
* If you go down this way, you can stay with the same lender or If you choose to shop around and find a new lender; you can potential have 2 new lenders each securing one portion of the land (one title each etc) –
* in regards to the construction; for the empty land- you would apply for a vacant land + construction – depending on which lender this is allowed up to 90-95% of the valuation/market value LVR

2. Build first then subdivide

* You would have only ONE title- so only ONE lender securing property + the construction cost
* This option provides less flexibility ( explained below)
* Apply for a new loan ( some banks allow a split loan into your existing) ; the new loan would be a construction loan.

——–
For both options, the bank will be fine with the construction as long as you afford to service the loan your after and you must have all council approval, fixed price quotes and plans set and ready before they will consider your loan.

I would say option 1, is a far more superior option in term of protection, since im guessing this is your first development project. Reason i say that is; option 1 allows you to change lenders and find new competitive rate for EACH land ( so if you had problem with your current lender you can simple change it over) . Lastly if you gotten your self into some unforeseen financial problem; you can simply place one of the construction on hold or simply sell one of the land off to offset any short falls.

Forgot to add: Depending on what your purpose is: ie build and sell? or rent out- it’s an good idea to speak to your tax accountant first if your planning on adopting the build and sell strategy as CGT would be potential be in play and if done correctly you could save thousands on CGT

Lastly either way make sure the new loan you apply for is a SPLIT loan- DO NOT add it to your existing PPOR loan – very important loan structure if you want to claim the full tax deductions.

Regards
Michael
From Michael - propertyinvesting.com

 

[evshaun]

OK, so it's all about the finance? What if we don't require finance for the build?

Our strategy is buy and hold.

As the new property will be our PPOR, if we keep it on one title, we would be exempt from land tax on the second property, and then only subdivide and sell when we're ready.