I want to subdivide, but where do I start?

Hi Margaret,  

I need your help. Currently I have an old house on a piece of land in Longanlea. I would like to look into subdiving the property. Where do I start?

Appreciate your help and knowledge.  

Thanks  and kind regards,

Stacey

Hi Stacey,

Many investors write to me eager to begin a subdivision, as they see it as the chance to make quick profits, easily.  Sometimes it is, but more often than not subdividing ends up being costly, time consuming and very stressful, with the profits made disappointing and sometimes not commensurate with the effort which has been made.  

Before you subdivide, it is critical that you establish the likelihood of being able to make a considerable profit from the exercise, both in terms of the final value of the subdivided property and the improved rental yield.  If you are able to subdivide a property while keeping the existing property (with or without a renovation) then this will always be preferable.  In this case you can essentially end up with a free piece of land, which, if developed, will more than likely be worth more than it was before the subdivision.  While you subdivide you can at least be earning  rental yield from the existing property.

On the other hand, if subdivision requires demolition of the existing property, you really must do your numbers to establish if this is a worthwhile exercise.  Demolition can run to tens of thousands of dollars, and along with the costs of subdivision, which in itself can be up to $50,000, you should be sure that the resulting two blocks, considering any loss of value once they no longer have a dwelling on them (or the improved value once you spend money on erecting two new dwellings) is worth it. 

When establishing this, do be sure to take into account the accruing interest on any loan on the property (which you must pay without the benefit of rental income), and the interest on any loan you need to create the subdivision and/or build new dwellings, all which add to your cost base.  

If you have done the exercise and still feel that there is a chance for profit, the next step would be to consult with a local town planner.  Town planners can guide you and help to establish if the proposed subdivision falls within the council’s development application (DA) requirements.  If it does not, they can also advise what they believe to be the chances that you can be granted an approval under an exemption of some sort, which can happen.  The costs of a town planner, which can be anything from $2,000 - $5,000 should be considered in your subdivision costs.  

The town planner should be able to arrange for you any surveys, engineer’s drawings for driveways, drainage and easements and even prepare the submission for you.  Remember that at this stage you must pay all of these costs prior to even knowing if the subdivision will be approved.  Some councils have good pre- DA processes in place designed to minimise costs and save you submitting a DA application which they would never approve in the first place, while others don’t.  I personally have spent $10,000 in an area in Queensland for a DA which is now dead in the water due to a constantly changing opinion about what can and cannot be done, so there is a very real possibility that you will lose money unless you are sure that your subdivision is straight forward.  

Your DA approval will come with a list of requirements which must be attended before the final subdivision is cleared (such as access-way construction, and any sewer and drainage requirements) and, once done, your subdivision is complete.  Depending upon the council and their policy, this can take three months or it can take 12 months – there seems to be no standard here, and however long it takes you’ll have money on the table not getting a return and essentially adding to your costs.

Regards,

Margaret

She is the founder of Destiny.

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