I want to build two houses on one block; should I subdivide now or later?
Hi Margaret,
I have a duplex approved vacant block in Queensland. The block size is 928 square metres. I don't want to build two houses/units that are attached. I have checked with the local council (Logan City Council), they have informed me that it is possible to have two detached houses build on that block (which we will have to apply for).
Now I also asked them if I could subdivide that block into two lots. They said that was possible as well with application of subdivision costing $1,095 plus $520 per lot which comes to a total of $2,135. They said that the headworks charges would come to approx $28,000. This $28,000 is for one block as there will only be one additional block.
I asked them if there is any other charges that I may come across. They said there would be a water meter connection (which a different department of the council informed would be $1,414.41).
They said that I will also need to hire a surveyor, at least for official drawings for sealing. I estimate the total cost of subdivision to be around $40,000 (including some contingencies). the subdivision is on a corner block so roadworks will not be required. The duplex block is part of a subdivision that happened approx 1 year ago and therefore the infrastructure and all services are all new.
Now I am trying to figure out whether it is better to have the block subdivided into two lots and then build a house each on it or build two detached houses on it without subdividing. If I subdivide, I think the bank valuation would be higher but the rental income would be the same for both scenarios. But if I subdivide, then the return on investment through rent would be less.
Can you please shine some light on things or views that I am missing out on. What do you think I should do? Should I spend to subdivide (while the extra money spent for subdivision may turn out to be the same valuation that the two blocks combine will generate), or should I build detached houses without subdividing and let the subdividing idea sit for future.
Kind regards,
Chetan
Margaret's answer on the next page. Please click below.
Hi Chetan,
It seems like you have already done a lot of the due diligence in considering the true costs of this subdivision, so well done. Often people don’t consider this big picture and instead rush ahead, only to find out too late that the costs exceed the benefits.
It is true that, most often, two separately titled blocks can fetch a better valuation than a single-titled, two dwelling lot. In my experience the difference is between $30,000 and $50,000, depending upon where the block is. However, usually the rental return remains the same – tenants are rarely aware of the title arrangements and won’t know whether they are on a separately titled dwelling or not.
You need to consider your personal circumstances before working out if it’s worthwhile spending this money now, or later.
If you will be relying on equity to allow you to leverage into more property, you will want every cent of equity that you can get. It’s possible that subdividing now will allow each individual block to gain value at a greater rate, giving you more overall equity and allowing you to leverage into more property sooner. That extra $10 - $20,000 in equity might add up to $100,000 in borrowing capacity (subject to your qualifying), and you could then acquire more property now.
On the other hand, if you have plenty of equity elsewhere in other property and are not stopped from further leverage, I cannot see the point in subdividing at this stage. Keep the money and use it to pay down debt, which in itself will provide some more leveraging power.
Down the track, when you wish to liquidate your portfolio to access retirement funds, you will probably want to subdivide then, as it will be easier to sell two separate blocks and you should fetch a higher price for each than you could get for the two combined.
Regards,
Margaret
Margaret Lomas is a best-selling author and writes and hosts the popular 'Property Success With Margaret Lomas' and heads up the panel on 'Your Money, Your Call', both on Sky News.
She is the founder of Destiny.
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