Subdivision strategy

[Fisher]

Hi,

I have a house in Ryde, which is worth between 850-900k. It is mostly the land, as the house is around 60 years old wooden frame building. This is a corner block with 758sqm of land. With the changes in the new DCP, I will be able to subdivide it or build duplexes/villas. We had a similar block sold for 900k couple years ago, then the buyer demolished the old house, build two free standing town-houses and sold one for 900k and another for 910k, probably earning 300-400k in the process. The council will now allow to build duplexes/subdivide with the minimum lot size of 300sqm even if someone did the same not far from your lot, which was not the case before and because of that other guy I could not subdivide.

An agent approached me saying with that development potential my house is worth about 100k more now. I am not going to sell it unless this will allow me to move into better house and/or better suburb, for which 100k is not enough, because the stamp duty and agent fees will eat up around 50k from this and another 25k will be lost because I paid mortgage insurance when buying my place and if I sell this one decide to borrow above 80%LVR on the new property, I would have to pay the whole amount of mortgage insurance again.

So, I understand, to make any reasonable money out of this, I would have to do the subdivision myself, develop the houses and sell them. By selling just the land with development potential I will achieve nothing, but making the developer rich.

How hard is it to go through this process? Do I need a lot of cash reserves to make this happen?

Thanks.

 

[matto_]

There are various exit points on the development process, including; with potential (where u r now), once u have the sub divided block, once you have built the town houses, never. Each exit strategy woulda require its own assessment.

 

[Fisher]

There are various exit points on the development process, including; with potential (where u r now), once u have the sub divided block, once you have built the town houses, never. Each exit strategy woulda require its own assessment.

So, how does each exit strategy add value? E.g. at the moment when there was a potential it added around 100k value, which is not enough for my goal of moving to a better house/suburb. Comparing the subdivision and townhouses built how much difference it would be?

I assume it would not require much cash to do the subdivision, but building (having no experience in that) may be tricky. So I am trying to understand would the subdivision along be enough for my goal and if not what it would take to build the townhouses? Any ideas?

 

[Ideo]

I have made money from getting approvals (it's what I do so I can get it done cheaper) and selling it as approved land for subdivision.

In terms of return on investment it is quite high - as a percentage it can be higher than selling the end product (sometimes, lots of caveats etc).

The big issue is time frame and having the money in reserve for the actual building costs. There are quite a few risks associated with this process and I have seen people walk away with a loss due to unexpected, but not unreasonable, costs in the building process.

 

[Aaron_C]

You will make the most money (in terms of potential) if you do the actual subdivision/building yourself as it adds the most value. However this is the riskier option due to building costs etc. But if you know your market well it is very lucrative - especially now with the downturn builders are more willing to negotiate on price.