Changes in the R-codes have also changed the way a lot of Western Australians look at the potential of investment property. In Perth, we have seen a lot of properties that were once unable to be subdivided suddenly become suitable for development and greater profit. Plus for those that were at R40 zoning or above, there is now the potential for higher density apartment development.
But does it really happen that way?
In many cases, yes. But it isn’t always a “slam dunk” that a property that is eligible for subdivision or multiple dwelling approval is going to turn a profit for the investor. There is a lot of “red tape” involved in development and a lot of chances for things to go wrong. Plus you also need to plan your financing and exit strategy carefully, otherwise the development will never get off the ground.
It can be done, and profitably, but you have to know what you’re doing. Here are some tips and tricks to make more money when subdividing a property.
Doing Due Diligence
Some investment properties are great candidates for subdivision and development; some aren’t. In a competitive market like Perth, you need to know the difference.
You Can’t Fight Supply & Demand
The first thing that should command your attention is the law of supply and demand. Is there enough demand in the market you are looking at? Inner and middle-ring suburbs are high-demand areas; you may be able to sell your new properties quickly and at a hefty profit, or hold on to them for a few years and turn an even better profit. To get your financing you may also need to sell all or part of your development of the plan.
But they have to be in an area of high demand and short supply. Otherwise, you are just adding more product to an already-saturated market.
Meets the Requirements
If the area is good, the next thing you need to do is check with the local council and make sure you know with a high degree of certainty what can be done. If a property can be subdivided, each new property must conform to the R-codes and any requirements of the council’s town planning scheme. Currently, this information is available from most councils on their websites but I suggest you call or visit to speak to a senior town planner. They really are very helpful and it is their job to advise you.
Most investors are not aware that you are able to apply for a 5% variation to the total block size and minimum block size of one of the units, however the property does need to meet a number of tests to show suitability. So its best never to count on a variation and work with a surveyor or town planner to get it through council.
Connection to Services
One of the major killers of development profits is unexpectedly high costs to connect into the services. So to avoid this trap make sure you carry out a “dial before you dig” check of the services in the surrounding area. If you don’t have access to sewer at the front or back of the property, extending the sewer can be the most costly exercise.
It can be well worth making your purchases subject to Geotech survey to detirmine the soil type because if you strike clay, you can double or triple your cost of site works. Thats enough to kill the profit on any deal! Also be aware if the property is sloping the cost of retaining and drainage can also ramp up the costs so you really need to get this quoted up front to avoid nasty surprises later.
There are density bonuses that can be applied for to reduce the minimum and average areas required under the R-codes by 30%, for retirement and single occupancy dwellings. This can mean an extra yield of 1-2 units for a 3-4 unit site but you have to way up if there is demand for such housing in the area.
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