Hi, i have 2 queries i have been trying to work out for a while
I will use my current residence as an example to highlight my query.
a) I have a 600k house in Melbourne outer Western Suburbs
The land is a corner block and is 650m2 / i subdivide the land at the rear measuring 22mt wide x 11mt deep (242m2).
b) i build a 3 bedroom / 2 bathroom / single garage unit on the rear block, i can sell it for approx. 400k
c) It would cost approx 170k to build the new unit, so the profit is approx 230k
d) If i sell it as vacant land i may get approx. 200-220k
e) As you can see there is not much profit difference between selling as vacant land or building.My first query is, why would someone go through all of the hassle of building when you would make only 10-30k more.
Am i thinking correctly?
In General, is it better to build or sell the rear block as vacant land?My 2nd query is, how can i work out, what the existing house is worth now that it’s land component has been reduced by 242m2?
Would appreciate any comments
Hi Boko,
I would firstly get a couple of real estate agents to give you an evaluation on both the land and the existing property as being subdivided (do you have plans and permits or are you guessing? ). I would also have them value the plans for the new property. If you are to obtain a loan and build, the banks will also do an evaluation on the property and its always a good thing to know what that evaluation is (keep in mind that it is a conservative estimate around 10% less). If you are to build, i would also get a builders quote for the new property. You have other options available to you, such as selling off the plan with a contract from a builder (providing you get the price you want) once again selling off plan normally results in a loss of about 5% – 10 %. Or if the figures dont stack up then you might want to sell the land as is. Don’t forget to include the costs involved for plans and permits !! You need to do the research and find your best option, i wouldn’t bother building for a profit of 10-20k if that is the case.
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