Hi all,
When we bought our first house together, my partner and I considered our PPOR to be the starting point for our portfolio. It is in an are zoned for units and infill within Ipswich. It is not where we want to live forever but figured it was as close to blue chip as our money could buy at the time. The investigations we did prior to buying showed great potential for this block, and luckily enough was well clear of the floods.
We knew we did not have the capital required to start developing the block for units, but may have at some point in the very distant future. So we started renovating to a standard that will last for around the next 10-15 years, While we rent it out and move onto our next place. The plan being that we could remove the house from the block and develop whenever we have the coin and a favorable market.
That would put me at about 38 so a good time for a career shift into property!
As we get closer to the end of this renovation activity, I am starting to consider other options for this block that could realize that goal a little sooner.
The block is around 16m wide, and totals 809m. The existing house is around 10m wide. The back yard is sizeable. So I see two potential options:
1. Subdivision. To do this I would need to shift the house over a metre and a bit, just to get the 3m minimum driveway and enough space to comply with a boundary relaxation. reconnect services, and pay for council fees and contributions. Also there is potential for damage to the recently completed renovations… That’s the ‘extra’ on top of the usual town planning, council application, surveying, etc.
2. Dual occupancy. By this I mean build a proper second three bedroom dwelling on the same block with separate meters etc. the council fees for this appear to be considerably cheaper, even with the town planning and surveying, etc. And I (probably) won’t have to shift the existing house.
In either case, the driveway will be too narrow to put more than one dwelling on the rear lot… So subdivision sounds like a very good way to blow any potential gains on council fees and so on.
Which leaves me with dual occupancy. And there are a couple of things I am hoping to understand from posting this.
Firstly, what sort of problems and unexpected costs are you likely to come across with a dual occupancy?
Secondly, what sort of impact does dual occupancy have on value of the property, as opposed to two separate dwellings on two separate titles? I know this is a hard one, but What ballpark percentage decrease would you consider?
For example, if I said the completed value of each separate dwelling on separate titles would be 320 and 350 respectively, so 670 total, what would the approximate value of the two dwellings be on one title?
One way I have considered trying to put together a value, is working out the rent return at a rate of between 4.5 and 6% to find a range… For example the rent return might be 300 and 320 each, making 620/wk. which is 32240/yr. So a range would be between $716,444, and $537,333…….. But that’s a pretty wild range to base any rational decisions on!
The reason value is so important to us for this project, is that we intend to tap into the equity short term to do more developments. Small subdivisions, etc to start building some passive income… And of course you don’t want to build a house out the back if it will be worth less than you paid to build it!
The value would cetainly be lower for a dual accupancy compared to a subdivided block, even if the second dwelling you built is exactly the same in both cases. It is easier to sell two houses on seperate titles compared to two houses on the same title. I would also factor in the flexibility that you would have with the sub-divided option- you would be able to sell one house and keep the other if you subdivided, however you would need to sell both if you went with a dual occupancy.
Would it be possible to talk to a registered valuer and pay him to do a valuation on the two options for you to help you decide? In my opinion, the fee you would pay the valuer would be money well spent if it helped you make the correct decision.
Thanks luke,
That is certainly true for the subdivision option. Selling the original house would likely provide a significant amount of equity in the remaining dwelling. However, on my initial tyre kicking estimates the cost of doing the subdivision versus just selling our place as-is left me with around the same amount of cash but exposed to a much higher risk. (due to shifting the original house)
Not to exclude the option though, I wonder if the same result could be achieved with a strata title after the build? Save the cost of a full blown subdivision including the cost of shifting the original house on the block…
Then the questions become how much creating a strata title would cost, what conditions we would need to comply with (given that one would be a queenslander and one a single story brick), also how much less the strata would be worth compared to proper subdivided.
You are right about the valuer too. I will definitely look into that before making any decisions.
I still like the concept of the dual occupancy, as it would provide a close to cashflow neutral position. So would be interested to see a ballpark from anyone’s experience or knowledge, it is extremely hard to find comparables!
grimnar wrote:So would be interested to see a ballpark from anyone's experience or knowledge, it is extremely hard to find comparables!Im based in WA but assuming the same principal would apply Australia wide. The valuer will put a price on the dwelling as is and if you are lucky will add the construction price of the new build to the total value.
Once subdivided this will change significantly as already mentioned.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
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