Hi All!
I’m new here and to the property investing game. Good old forums to the rescue for help! I was hoping to run an idea by the forum and see if it’s even possible to do.
My wife and I have been saving up to buy our first home (in Sydney) and, as you’re all aware, Sydney is not the easiest place to start with a first home because of how expensive it is. The way we’re going, it feels like it’s going to be several years before we get to buy.
So, I was thinking hard of how to speed up the process and I thought that since I have friends (couples) that are in the same boat, what if we were to buy a big piece of land (each with our mortgages), subdivide the land and each build a house? Is it even possible to do this?
The attractive point of this exercise is that the land might be worth $500,000, which divided by 2 plus the cost of the construction of a relatively simple house would be well below the $500,000 mark each (including subdivision costs, etc). Space might be tight, but we’d have our own home!
Is this insane? I only thought of this today, so it hasn’t been researched (apart from a little Google, that led me to the forum!)
Thanks in advance
GonzaloIt's not insane
Firstly you would want to call the First Home Owner Grant people and ask how this would work (ie if each couple was claiming the grant).
You would also need separate solicitors and lock tight agreements.
You would also need to have extensive discussions with the council to understand what the minimum resulting block sizes would have to be, and how much "house" you would be able to build on the resulting blocks. For instance, a council might say "after subdivision, block sizes must be a minimum of 300m2, and there has to be 40m2 of open space (ie not built on )".
You will want to talk to council and the water company to understand what might be "under the ground" that cannot be built over. Each block will have to be investigated. For instance, you will not be allowed to built over a sewer main without applying for special permission which could in turn be rejected. So it'd be most unfortunate if you bought a block that had a sewer main running through it where you needed to build a dwelling.
Look into trying to get "pre Development Approval" as a "subject to" condition on the sale of the land. In other words, it'd be good if a condition of sale is that council gives you an in theory approval to construct the two dwellings.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
This is a great idea, and I think it will be the way of the future as land gets more scarce, and first home buyers realise that this is a great way to get into the market. As long as you all have the same vision at the outset, and you investigate it with Council, its exactly what most developers do – i.e buy a block of land, subdivide and build a second dwelling, or build the dwelling first and then subdivide. You can even have the Development application done to show what you plan to do(2nd house and subdivision) and get it approved prior to purchasing the land – but I suppose you'd need to get a solicitor involved with some fancy clauses that ensure you have the right to pull out if its not approved. Approvals can take along time in some councils -3 months is the standard time that it should be done in, but have had one done in 3 weeks last year at my Council! You first steps should be talking to Council to see if its allowed(it will be subject to your zoning etc)
then talk to Real estate agent to see if seller would consider this option. Sometimes Councils are not very helpful. I n this instance, you can talk to a specialist in these types of things – a PLANNING consultant can help you. They basically know all of the legislation back to front and could possibly even help you find a suitable site or tell yu what to look for. They do cost a bit though. Good luck!On issue with the land is that the loan would need to be in all names – the same as title. So if the other party stopped paying, then you would be responsible and you could be used and lose your other assets if there is a short fall.
You could possibly avoid stamp duty on the splitting of the bocks into one name each – but you would need a deed of partition and have the exact sizes determined before you settle on it. As long as the split results in these sizes you may be ok. Otherwise you will have one block with 4 names being split and one part going into 2 names and the other into a different 2 names = stamp duty.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks everyone for all your feedback! Very informative indeed.
It is good to see that it wasn’t such a crazy idea after all. As I mentioned in my first post, the motive behind wanting to do the subdivision thing is savings. I haven’t done the numbers yet to determine whether there will be much in the way of savings after paying subdivision costs, solicitor, and the rest of it, mainly because I don’t know what all the costs involved are! It is interesting that different councils have varying laws and stuff. That means that if one council rejects the idea, maybe another will approve?
@terryw: The one loan in all names is a concerning. I was hoping each couple would get individual loans to pay for the land (not even sure if the bank would lend the money to pay for half of a block of land). Having to get the one loan in all four names would be an idea killer as the risks are too high (like you said — if one party stops paying, the other is stuck with the mortgage).
Time to make more enquiries and read up some more on all of this. Thanks again!
If anyone else has anything else to add, feel free!
A lender would allow individual loans, but the other owners of the loan would have to guarantee these loans. Which essentially means they same thing – if one doesn’t pay the other 3 are liable.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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