Worth buying to subdivide?

We're considering buying a 50 y.o. brick home in a middle-ring Melbourne suburb with a view to eventually subdividing and selling off the rear block of land as a battle-axe block. We've no experience with subdivisions and don't intend developing anything ourselves. We plan to rent out the house and start the subdivision process at some stage in the future. The land is around 700m2, so should be big enough to subdivide, as the house is near the front of the land.

It's in a good location, a quiet street near shops and a train station, and the suburb's forecast to have above average capital growth, but the numbers aren't good - gross yield would be 2.5%, hence wanting to subdivide. As the house is 50 y.o. there's also no depreciation and maintenance costs would be higher. It would allow us to do a cosmetic reno (also a first for us), adding value and allowing us to increase the rent.

Our alternative would be to buy and hold a house in a middle-ring Brisbane suburb, but as we live in Melbourne we'd look for a set-and-forget brick house. It would be cheaper than a comparable Melbourne property and likely have a higher yield, but as it would be interstate we wouldn't want to reno it and would be unlikely to subdivide, so no options to add or extract value. We'd also have to arrange a property manager for the Brisbane IP; we'd self-manage the Melbourne one.

The Melbourne house would be fairly heavily negatively geared, which we could support, but the low yield is causing me some concern. However, wouldn't most houses in middle-ring Melbourne suburbs have this issue too? If we're planning to buy and hold, subdividing the land at some stage, is this still worthwhile in Melbourne or would Brisbane be a better bet given its stage in the property cycle?

I'd appreciate your thoughts,
GreenGoblin
 
"should be big enough to subdivide" is simply not good enough. Research thoroughly to ensure you know exactly what you can and cannot do with the property if you buy it (and what costs you will incur).

If it is subdividable, that advantage is probably factored into the price.
Marg
 
Aaron_C, I doubt I'd subdivide an interstate property, so am comparing a subdividable one with a very low yield against a cheaper interstate property (still to be found) with a higher yield.

marg4000, I agree I need to confirm that the property can be subdivided, but given the land size (around 700m2) and the fact that a similar size block nearby was subdivided, am pretty confident it could be subdivided.

The question is more around whether or not it is worth it given the scenario I describe above. Thank you for your feedback to date. Any other thoughts?
 
Aaron_C, I doubt I'd subdivide an interstate property, so am comparing a subdividable one with a very low yield against a cheaper interstate property (still to be found) with a higher yield.

marg4000, I agree I need to confirm that the property can be subdivided, but given the land size (around 700m2) and the fact that a similar size block nearby was subdivided, am pretty confident it could be subdivided.

The question is more around whether or not it is worth it given the scenario I describe above. Thank you for your feedback to date. Any other thoughts?

I know of properties at 1000 Sqm with covenants of 1 dwelling per original subdivision. It's in a Melbourne area at about 80 years old
 
marg4000, I agree I need to confirm that the property can be subdivided, but given the land size (around 700m2) and the fact that a similar size block nearby was subdivided, am pretty confident it could be subdivided.

What? I hope you aren't only relying on those 2 facts when deciding whether or not it can be subdivided. At least get a professional opinion (a surveyor or town planner - not a real estate agent).

I've always said its an unacceptable risk buying subdivisable land if you don't fully understand how it can be subdivided for its highest and best use.
 
I wouldn't buy it

If your yield was closer to 5 I would
It will just stop you from buying further property down the track

At only a 2.5 % yield and 850k buy in you would be forking out at least 26k a year or $500 per week....
 
The decision needs to have due diligence and figures for you to decide.
A. Can it be subdivided
B. How much does it cost to subdivide
C. How much can I sell it for
D. What is the end result for profit and yield.

Until then it is a ' how long is a piece of string' question
 
The decision needs to have due diligence and figures for you to decide.
A. Can it be subdivided
B. How much does it cost to subdivide
C. How much can I sell it for
D. What is the end result for profit and yield.

Until then it is a ' how long is a piece of string' question

Agreed, and even that is dumbing it down quite substantially. There's many costs involved, and then there's contingencies, they're the costs you don't foresee, and probably can't until you actually go through the process, since each block and each local council is different.

Having said that, my first subdivision, and anyone's for that matter, is a learning process, and you can't really take shortcuts. Just try and get as much information as you can before you start. I did a similar one to what you have described in Perth and managed to squeeze a 15% profit out of it after selling the back block as vacant land, and then the front house. It was a relatively simple subdivision as subdivisions go.

Talk to a quantity surveyor in the area, they should know roughly what costs you will be up for and what conditions the local council will impose on you.
 
Thank you all for your feedback. More research and learning to be done - we'll pass on this one as the buy-in is high, yield low and we haven't worked out numbers to justify the purchase.

Back to the hunt!
 
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