Hi all,
I am a uni grad with a small deposit looking to to make my first investment.
I have found an area with potential (in my opinion) as there are many old timber homes on large blocks. Some of the delapadated ones have been demolished, subdivided, and then the land is sold to people to build, or being sold as preplanned home and land packages.
My plan is to find a good sized block with an older home, but one which is still livable so that I can allow the current tenant to stay for around 6 months or so (to assist with initial repayments) and then I’ll move in myself.
I’ll live there for a few years and when a- the house gets a bit older and less worthwhile keeping and b- i have more money saved up, I will demolish house and subdivide.
My question is however, I have observed the prices the houses and land are selling for as well as the prices of both the vacant subdivided blocks and the home and land packages and cannot see how it is overly profitable in this area.
For example, the old original home and land might sell for around $340,000, be subdivided, then blocks appear for $180,000 each. When you add the cost of demolishing and subdivision, how are these people making any profit? Is there something I am missing?
As such, this makes me slightly sceptical about my own plans… if this is the maths of the situation, isn’t there nothing to gain from me going to the effort of demolishing and subdividing??
Look forward to you comments. Thanks!!
You are correct in your assumption – in this situation there is very little profit to be made from subdividing TODAY (but may be possible in the future).
In many areas where subdivision is permissable, you will find that the value of the second block has already been factored into the market price of the older houses on large blocks. Holding it for six months is unlikely to change the scenario.
I believe in this situation you have a few options:
1. If you truly believe the area has long term growth potential, you could buy it and hold long term in the hope that increasing property values in the area will make your duplex block more valuable. Some investors swear by this strategy and it can work well over time, but sometimes it might not work so well.
2. Look in a different location – one in which subdivision is likely to happen soon, but has not yet been formally approved. You need to get into a large block before it becomes a duplex block to make significant money in a relatively short time frame. You must think ahead and beat the investor rush into these types of locations in order to buy low and sell high.
3. Give up on the idea of buying a large block – poor rental returns and big maintenance issues could be a headache. Look for something smaller with better rental yields.
Best Wishes.
The Donald.
Hi there…
You wrote:
“For example, the old original home and land might sell for around $340,000, be subdivided, then blocks appear for $180,000 each. When you add the cost of demolishing and subdivision, how are these people making any profit? Is there something I am missing?”
Going by that, I think it’s probably fair to say that $340K is too much to spend on these blocks, for a “vanilla” style subdivision.
The selling price should normally be lower than the listed price.It sounds like you have noticed the demographic of the area is changing, so is zoning, and the minimum area for block sizes.
Perhaps check with council… Ask:
What is the minimum block size for a free-standing house?
What zoning category does this area fall under?
ie. low / medium density etc…Then when considering development / subdivision….
Try to use the land for it’s “highest and best use”
For example… if you can fit three townhouses on it or four units…
do that instead of two blocks.Hope this helps.
Cheers,
Anthony.
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