Buying a house to subdivide
As the property investment sector matures in Australia, more investors are looking to small developments. There are a number of ways that investors can create wealth through property development, including the choice to subdivide. So here’s what you need to know before you purchase.
The types of subdivision
There are many different types of subdivision but not all strategies are suitable to all properties because of the various rules, regulations and zoning found in each state and territory across the country.
Involves converting a single title into multiple titles e.g. splitting up block of 10 units on one title into 10 separate titles. This increases the value of the properties and it allows you the option of selling each one off individually.
Not every state or territory allows for granny flat construction, nor is it suited for every market because there has to be demand from potential tenants to live in one of these dwellings to be make it financially viable.
This involves splitting a large block of land into two or more lots and then building a new property on the vacant land.
This is a process that is much more involved and is very capital intensive. Developing raw land requires not only a legal splitting of the property but also physically changing the use of the land.
What to look out for
With any potential small development, you need to thoroughly understand the zoning in that area. You can find the current zoning by checking with the council, which will help you determine if, and how, to develop a property. Believe it or not, your council will usually be happy to help you in this area!
For a property to be approved for subdivision, it needs to conform to the local town planning council’s minimum lot size. The first requirement pertains to width, the second to overall area. A third requirement is zoning. Exact details of each requirement are easily accessible via each council’s town planning scheme.
If you’re considering subdividing a house and building another dwelling on it, for example, then you generally need to look for a property that has a land component of more than 700 square metres.
The shape and slope
Another important consideration is the shape and slope of the land, which can play a significant role in how many dwellings can be built on your property. The shape of the block can restrict access or reduce the usable working area of the land, making construction impractical.
The slope of the land has the same effect and unfortunately this can catch out many first-time investors. It’s quite common for listing information not to include these attributes, while selling agents generally can’t provide expert advice on the matter.
The structure of the land
It’s always a good idea to enlist a surveyor. They assess whether the structure of the land is going to physically support the development that you have in mind. The cost of the survey can vary from $550 to $1,500. This depends on the size of the block, however consider this as an investment in your project and not a cost. It could potentially save you thousands of dollars or even more.
In most cases, you will need council permission to remove a tree. Some species are protected and you can remove them before prooving the tree is too diseased or poses a danger.
You will also need to hire a qualified arborist, who will inspect the tree. Their inspection report and your application fee can add up to $400 or more. Tree removal can cost between $2,000 and $6,000 per tree.
Easements, storm water drains and sewage
Every property also has a bunch of other attributes that you usually can’t see but are ones that you must know about. These are easements, storm water drains and sewage, which we admit isn’t the sexiest elements of property development.
Property plans will be able to determine whether there are any easements and the location of storm water and sewerage drains.
The costs of subdivision
Council costs can include the application for a plan of subdivision, engineering plan prepared by council, supervision of works and checking of engineering plans.
There also may be other expenses to help cover infrastructure costs if the development increases the number of lots. These fees will cover costs for increased infrastructure such as water and sewerage and can be between $50,000 and $70,000.
Finally, if the council looks at the property and believes that it might have issues with overland flow, it may require a report from a hydrological engineer. Reports like this can can cost around $5,000.
Any small development project must have a detailed feasibility analysis completed long before you proceed. In fact, before you consider buying a house to subdivide, you must run the numbers to ascertain whether the project is feasible or not.