This month as well as our normal check in on activity levels in the Perth rental and sale market, we take a focused look at how you can profit from Subdivision in this market… one of the key money making strategies many of our clients are using to add value to their properties. Plus on the rental side we look at why we generally do not recommend furnishing your rental property.
Sale Market Update
What the latest statistics are telling us
The number of properties on the market for sale in Perth metro area has dropped over the last month from just over 15,500 to 15,300 listings (source: REIWA). Not a big drop in itself but the continuation of a downward trend since June and even more notable given the extra supply of new properties expected on the market for a Spring sale.
However if the rest of the market is anything like the owners I am working with, house preparations are taking longer than expected and we will see a lot of new properties hitting the market over the next 4-6 weeks. Even if it takes a little longer to prepare your home, It’s definitely worth getting presentation right the first time, striking the best emotional response from buyers, getting a quicker sale and a better price.
Sales activity has held at 900 sales per week and is well up on 700 sales per week at the same time last year. We are seeing a slight increase in buyer activity out at home opens. However like the weather it will probably take a while to warm up.
Subdivide & Profit
Subdivision is making a comeback with investors in this flat market because of the chance to create profit without relying on capital growth. Here we take a higher level look at property subdivision, the process of dividing a single title into one or more titles.
Rare as hens teeth but little profit
During the peak of the boom, smaller sub dividable properties (less than a 5 unit site) were as rare as hens teeth. They would sell for well over and above asking price. Many investors were factoring continued capital growth into their projected profits and without this growth the return of going through with a subdivision would not have been worth it.
Caught up in the hype, when the market turned many investors including myself were left holding properties that while sub dividable had lower than normal rental yields, above average maintenance and were not profitable enough to subdivide.
Coming back to earth
With an absence of investors now in the market, the premium price on sub dividable properties has come back down to earth making them a much more attractive investment option. Plus having now completed subdivisions ourselves as well as helping many of our clients do the same, we have a whole range of twists and tricks and have assembled a team of Perth subdivision experts to squeeze even more profit out of a site!
This all makes for the right time to investigate whether subdivision is the right strategy for you.
Subdivision strategies to profit in this market without needing lots of money
Researching areas that councils are planning to imminently re-zone, buying in at today’s prices based on current land value and benefiting from the upswing in values as your property is re-zoned to a higher density. (An Example of an area we are looking at include Kalamunda Shire which has a scheme change now announced, with buying opportunities for medium term hold’s)
Retain and split
When looking at smaller subdivisions the return is usually greater if the existing house can be retained with the side or back block(s) being split off. Properties located on a corner site are ideal because, not only will all blocks will have their own street frontage, but these sub division are typically cheaper to create and will sell for more. Options include a combination of selling the split block(s), selling the front house, and building on the block(s).
Aged or dependent persons’ re-classification
Commonly known as an “Over 55’s” development site, if a potential big 3 unit or nominal 4 unit site or more is close (500m to 800m depending on Shire) to transport, shops and facilities then a 1/3rd reduction in lot size Over 55’s density bonus will be approved. Turning a 3 unit site into a 5 unit site, and a 4 unit site into a 6 unit site.
Adding value and choosing your exit point
Many investors think that to make money with subdivision you have to take on massive debt by going through with the whole subdivision process and then building on every lot you create.
However when you understand the whole process there are opportunities to add value and exit at various points and it doesn’t have to be costly. We help many owners work through their options and formulate an exit strategy to maximise their sale price with a comfortable level of investment. This is best done before you even buy a property.
Warning! Read this before you even consider buying a property with subdivision “potential”
Profiting from subdivision is not easy, there are many hidden traps that can destroy your planned profit right before your eyes. Surrounding yourself by experts and seeking their input before buying a property is the best way to increase your chances for success but in order to pull it all together you need to at least know the basics of subdivision. That is why we have put together the Subdivision Basics Seminar, with dates soon to be announced for the next 3 months. Make sure you join the Investors Edge Community to receive your invitation, click here now
Rental Market Update
The reported Perth median rental price has increased over the last month from $390pw to $395pw, the upward trend continues. Properties coming up for re-leasing with us are generally seeing a small $10-$15 increase on the lease amount from six months prior.
However we are finding less desirable property types (with poor car accommodation and/or dated presentation) in areas with more available rentals, a challenge to source acceptable new tenants at the same rental amount as rented for previously. Tenants are continuing to become more choosey over what they want in a rental property.
Thinking Furniture…Think Again!
Sometimes we come across clients that would like to place or leave furniture in their rental property, believing it will be beneficial and more attractive for new tenants, and also a way to increase the rent return of their investment.
Certainly if the property is being used for holiday accommodation, short term executive or even for student accommodation then furniture can be quite beneficial. However for a traditional rental property we have found this isn’t a good idea. Here are some reasons why:
Other people never tend to look after your possessions the way that you do! A few bumps, scratches and stains isn’t a problem if you do not own it. Unfortunately human nature doesn’t work too well in this instance with the care of your furniture!
Compensation on damages
It is difficult to get an order of full replacement or fair compensation should a dispute regarding damages make its way into a court or tribunal. This process can be quite disheartening for a property owner as monies awarded (if awarded) are never enough to replace or properly repair an item!
Restriction of new tenants available
As most tenants have their own furniture, providing the tenant with such items severely restricts the pool of available tenants wanting to rent your property.
Possible theft issues
A tenant who may require furniture can be more inclined to be ‘transient’ therefore possibly helping themselves to pieces of furniture should they vacate without due notice!
It is our belief that residential property should be provided vacant and furniture free, and we encourage any clients who may have furniture in a rental property to consider removing/storing or even selling any furniture items should the property become vacant again.
Property management needs to be as stress free and ‘conflict-proof’ as possible, so that you can enjoy your property investment and property management experience better.
I hope you have gotten some value from this month’s Perth Property Update, I would love to get any feedback you have or requests for future feature topics so please post your comments below.
If you are weighing up buying, selling or renting decisions I am only too happy to help you work through your options to get the best and most profitable result for you. My contact details are here.