No Idea where to start but may have found a good opportunity

Certainly have a chat to your local council to understand the zoning of the two properties.  In other words, what would they allow you to build on them if the existing houses were knocked down, and a an alternative, what the minimum block sizes would need to be if you decided to carve them up into pieces and sell them off.  You'll also want to know what's under the ground in terms of pipes.  Easements and sewer pipes.  Such things are expensive or disallowed to move and can restrict what you can and cannot do.

As JacM mentioned above – your local council should be your first point of contact if the primary reason for purchasing this property is for future development potential.

Cheers

Jamie

Hi Simky,

I think you need to step back first.

At the moment your focus seems to be on this block and the possibilities/options it may provide. Now the options in themselves may be quite reasonable BUT what about the bigger picture.

What sort of area is the property in from an investment/property values/economic point of view? You will need to be objective in this evaluation because you are making a business decision. Make sure the decision you make is based on solid, logical fundamentals and not emotional factors because it is the house next door.

How would you feel if your mother hung around for a while and delayed your 'development' plans? 

So step back and look at the bigger picture too.

All the best with it.

Hi SImky,

It sounds as if your mother is reasonable 'nick' so it is possible she may be around for a while (hopefully so of course) – this may present some problems for you as some people are really tied to the family home and she may be reluctant to move out ahead of schedule.

Of course it is possible you may be able to come to some arrangement that sees her moving into one of the properties after completion. While this means she isn't in the family home she is still living in her local area. Obviously there may be tax and related issues with this.

If your mother presents a 'stumbling block' to your plans and she hangs around for a while you will need to consider the income/costs of holding the neighbours property prior to development taking place. It is possible you may be able to develop the neighbours property before mums property becomes available. The first development may be part 1 of a master plan.

I would not be overly worried by short term deviations in the median price. There are a number of places in Australia with similar median price fluctuations. The numbers you quote are not abnormal.

In terms of fundamentals;
1, What is the nature of typical housing in the area? Is a development out of the ordinary and would stick out like a sore thumb? Is there demand for that type of property?
2. How are the employment prospects for the area? What sort of median incomes are there? Any plans for private/government development?
3. What are the local shopping facilities, schools, public transport, like?
4. Socio-economic factors?

And so on.

Hope this helps.

Determine what the houses would sell for AS THEY ARE NOW

Then compare it to what they'd sell for if you reno'd them a bit.  Remember to deduct costs of renovation.

Then compare that to what the townhouses would sell for, and deduct costs (demolition, planning application fees, build fees, bank interest…)

If the end result is that you wouldn't achieve more money with the townhouses, then don't bother.

Someone mentioned above that if your Mum plans to stay in her house longterm, you will need to be able to afford to hold onto the property until such time as a development could begin. The house will need work to make it tenantable for now, by the sounds of it.

Without knowing the suburb or median rents, and to give a broad generalisation, its pretty hard to find a house these days where if you purchase it with a 20% deposit and 80% loan the income covers the mortgage repayments. The house may end up costing you some money each month just to hold it for some possible capital growth and some possible future development. Be aware that to purchase it with an 80% loan, you’ll need 20% deposit + approx 5% closing costs + 5-10% renovations + holding costs for time of reno and advertising for a tenant.

Don’t be a pioneer in the suburb. As Derek suggested, drive around your suburb. Are there any other sites with a four townhouse development on them? If there is, don’t be afraid to ask for the builder and ask for a very rough quote on building something similar. For a gentle sloping block you should add at least 7% to the cost, for a difficult block with steeper slope add 20% to rhe construction cost.

I admire your interest and enquiries, and do agree that two neighbouring properties allow for more opportunity for standalone blocks. But as others have suggested, don’t forget all the other due diligence and research and be confident with the suburb from an investment point of view, and the location of the block. If the fact that its next door to your mum’s is the final icing on the cake, that’s great. But it should not be the reason for investing.

Don’t be scared by the overwhelming task of developing, there are loads of project managers out there who can oversee it on your behalf. This months API magazine features an “armchair developer” who is a ski instructor and outsourced the entire thing.

Good luck
Emma