Renovating vs Subdividing

hey isabel,

Im in the same situation, looking to do renovation or subdivision. I work a 2on2off roster and work long hours having access only to net and phone here.

my thoughts were that renovating would be a safer option (especially seen as though ive done a decent course on it) and be able to learn the ins and outs of researching, negotiating and project mangagement, without the exposed risk that a subdivision would have (have 2 or more properties to possibly sell, have to adhere to council, normally more money input required and would take longer than a reno because of council mainly)

However i understand that normally more risk normally equals more reward, having only 1 week off may be a challenge if you want to do a quick flip (so that mortgage repayments arent eating your profit)

A subdivision may suit better if you think you will only have just the 1 week off out of 3?

it really is a hard decision to make, 1 offers longer timeframe and more profit whereas the reno is a shorter timeframe normally with a smaller profit… guess this means you could do maybe 3-4 a year vs 1-2 subdivisions tying up your cash..

I honestly couldnt see myself completing a renovation in under 3 weeks and hence when i renovate will combine my rostered time off with annual leave to be able to adequately manage the project.

I myself am torn between buy and hold vs renovate and flip…

Both renovating and subdividing require an investment of effort and time. The reno is obviously much shorter (if sticking to cosmetics only – which you should be doing). The actual work can all be outsourced if you want but the project management is still effort. You can have that managed too if you are really time poor.
Subdividing is a longer process, but actually doesnt have quiet the same intense time requirement up front. Its more like agreeing that you will spend 15-30 minutes of paperwork time each week for say 1 yr. There will be a few weeks when you spend more time, some less, eventually if you have done everything right, then you have a subdivided block. Most of the subdivision process cal also be project managed but the cost are there and will eat into your end total returns.
If you get the due diligence right at the front then you can do it all with a tenant in place, buy/reno/rent/subdivide. Then hold or sell its up to you.

Corey Batt wrote:

Factor in the lost value of time with a subdivision, I’ve seen a few deals where developers have locked away significant equity/cash for 12+ months which could have otherwise been used to leverage into greater returns over the same period.

Repeated purchase/reno/reval can be a profitable venture if you do this consistantly in a cookie cutter manner. You can always have your cake and eat it by buying corner blocks which can be subdivided and front house retained.

I agree with this post completely. Renos can be done in weeks, no council, then sell or reval, higher yield, win win. If you want to sit on something for 18 months anyway then no worries, work on a subdivision after the reno. So in my mind the optimum model here is old house, big block, buy well, reno, rent, reval, hold, subdivide, then hold or sell. 18 months and profit is maximised and you can leverage into the next deal from only 3 months in (after that reval) while you keep working on this one. If you are waiting on council approval and sale on a subdivision for your grocery money then you are in for stress.

• This reply was modified 10 years, 1 month ago by  BuyersAgent. Reason: reword

Well done Tony! This is a great outcome if you have the capital and can handle the costs and timeframe. As such its not for everyone but the rewards are there. I have seen a few folk do very well indeed with this style of deal when a boom comes around and everything doubles. Kudos!

Tony wrote:

We are entering our second Rural Res subdivision.
We buy a home and live in it, land 30,000 to 50,000 sq meters around $750,000.00
After the subdivision the home on 8000 sq meters is worth about $580,000.00 plus extra blocks sold 2-4 @ $300,000 ea.
Raw Land cost $175000.00
Our last one we created 3 extra lots, the Total development costs were $365,000.00
Cash Flow was about $100,000, with development approvals in place ready to go and blocks in a completed state within our boudries.
The expensive stuff is external to your boundries, Street widening, Power, council contributions, surveying.

We got one block under contract then we did the street widening council contributions etc. it took another 3-4 months and really only had the finance the majority of the costs for 3-10 weeks. As soon as we had title and everything completed the other blocks sold within 3 months.

I think the go is….timing of the market spend the big dollars when things are moving up.

Land sales $960,000.00 less $365,000 costs profit $595,000 less land costs.
The ATO gave us a tax ruling that 50% Capital gains tax was applicable being our home….they might change their mind on the 2nd one.
We started the process in 2011 completed it april 2014 due to a depressed property market, but that did not worry us as the holding costs were not applicable because its our home capital.