How to create a cheap block of land
One of the easiest and most successful small development strategies I’ve used over the years is the old corner block development. We can create around $290,000 by investing $634,000, that’s a whopping 46% return.
By using this strategy you can also create a really cheap block of land. Developing is all about creating.
But before you start you’ll need to clarify a few things. What is the minimum lot size in the area you are developing in? What is the land zoned – low or medium density? Different councils use different terminology, but basically low density usually means two or fewer dwellings are allowed on one title of land. Medium density is three or more on one title.
You’ll also need to check the council requirements around dual occupancy and medium density. Things like minimum private space requirements and setbacks may discount some corner blocks if they are not large enough to accommodate a duplex and the existing house, or two duplexes. Basically we need to get three (or more) dwellings from one corner block. So it’s important to use a consultant with strong understanding of the local council requirements if you are not up on them.
Once you are clear on this, you can start your search. In one of the towns we develop in the minimum lot size is 450 square metres. So to be able to subdivide a corner site, you would need a minimum of 900 square metres. Now this is not always set in concrete, the council may consider a slightly smaller land size, as long as you can show you will be developing and building within its development control plan guidelines. By this I mean you may need to build first and subdivide later or incorporate the subdivision into your development application to build. This is actually my preference, as to subdivide a block upfront takes a lot longer and is more expensive than tying in the subdivision with your development application to build.
However, there are reasons why you may need to subdivide up front. One may be to meet zoning requirements. We’ve had to do this recently in a low-density zoned area where we found a 1,012-square-metre corner block with a house on it. We wanted to keep the house, renovate it and build a duplex facing the other street. In this location, we couldn’t apply to build a duplex on the block as this would be looked at as a three-villa development: the house (1) and the duplex (2 villas). The zoning requirement was that you could only build two dwellings on this land, so the house plus one other. Our solution was to subdivide the block and then applied to build a duplex (two dwellings) on the newly created lot.
So here is how it stacks up in this town:
Three-bedroom in need of a large renovation on 1,012-square-metre block – $210,000
Renovation costs $60,000
Set up, stamp duty, legals, surveys & reports: $11.000
Subdivision costs: $23,000
Cost to build duplex after subdivision registered: $330,000
Total Cost: $634,000
End value of the house on 400sqm after full renovation: $280,000
End value of the two new villas @ $320,000 each: $640,000
Total end value of the three properties: $920,000
Less total costs of $634,000
Equity Created: $286,000
(note: holding costs are not included as house rent and depreciation offset interest costs)
So what about that cheap block of land?
Well, you can see that we purchased the house for $210,000, set up costs of $11,000 plus spent $60,000 on the reno. The subdivision costs were $23,000. Total cost of the house renovation and subdivision is $304,000.
The renovated house on only 400 square metres will be valued around $280,000. So if we take the costs away from the end value we are paying just $24,000 for the other block of land where we can build our duplex. So the land cost is only $12,000 per dwelling.
And that’s why I love the old corner block development.
Jo Chivers is director of Property Bloom, which manages property development.