Ask Margaret: Can subdividing make for easy retirement living?

Ask Margaret: Can subdividing make for easy retirement living?
Ask Margaret: Can subdividing make for easy retirement living?

Hi Margaret,

I was looking at getting into property investment this year and my mother is retiring and plans to sell her older place for something easier living.

She currently likes where she lives so we are considering an option, if feasible, of me buying her current place to rent out and then she could build a modest seperate house at the rear of the property.

Apparently the zoning allows for this but not for a full subdivision (only 790m2) in Queanbeyan, NSW.

My question/s are, would setting up a strata be the best option? I still want an option of being able to sell one property in the future if needed. Who would I speak to and how do I go about setting something like this up? Or is it just too complicated (tax/titles, etc) for everyone involved.




Hi Kris,

There is certainly a lot to consider when thinking about not only buying an investment property, but also carrying out a subdivision. So, let me tackle your question one section at a time:

1. You buying your mum's house.

While I think it is a very noble thought assisting your elderly parents in this way, I want to be sure that your own personal circumstances are well take care of first. If you have a sound retirement plan and feel that you are set up for your own retirement (so that you can make choices in retirement without depending upon your own dependents to assist you), then by all means, take this step to assist your mother.

However, if you are not, then you must seriously consider whether you would otherwise purchase a property like this one as part of your own investing strategy.  Thinking that any property, anywhere is suitable to start an investment portfolio is a trap which leads many to owning property which does not perform over the long term and which provides lackluster rental return.

So, to start off with, ask yourself the question "If this were a property advertised on a real estate website, would I be interested in buying it?'. To answer that question, you will need to carry out the same extensive research that you would on any area to ascertain the existence, or absence of suitable growth drivers. You also need to consider opportunity cost - if you bought this property, what is the opportunity cost of having bought somewhere which may have a better short term prognosis for growth than this area.

2. Subdividing

You say that this property is not eligible for 'full' subdivision, but a strata titled subdivision is a full subdivision. When you subdivide, you will do so either as a Torrens title (Green title in WA), a strata title or any number of other titles such as community title etc. All of them are full subdivisions and must satisfy both state planning rules and local authority subdivision requirements. Very often property investors underestimate the financial and time costs of subdivision – you will face architects fees, planning fees, engineers costs, labour costs if the subdivision requires any works, council contributions, fees and charges, titles office fees – the list goes on and on.  Far from gaining a free block of land when you subdivide, very often costs can run to tens of thousands of dollars and sometimes hundreds of thousands. You must be able to come up with these funds up front, since they are costs which cannot be financed unless you have other property elsewhere to offer as security. Often investors so underestimate these costs, and the time involved, that they are left disillusioned, exhausted and out of pocket by the end of the process.

If this property does not qualify for actual subdivision, you may be talking about the ‘Granny flat’ option available in NSW. This means that as, as long as the property is more than 450 sqm you may add a second dwelling to the property and this can be rented to anyone. Permission to add a granny flat bypasses normal planning rules and is approved within 10 days. The only issue here is that there is still only a single title, and so you cannot sell one property without selling the other. The decision to add a granny flat to any property brings its own issue – will it add or subtract value? Will it make it harder or easier to selling the future? Will it be harder to rent out the main house with a second dwelling in the backyard?

3. The Financials

When your mum sells the property to you, she wont pay any tax as it’s her own home.  When you buy it, you must pay stamp duty on its full market value, even if she sells it to you for less than that. When you rent it to your mum, you must rent it for the full market rent or you may not be able to claim full deductions, although you can give her a discount if you don’t have to pay a property manager or do some of the other things nornally associated with earning a rental income. 

Your first port of call should be to a local town planner. They should be able to give you an idea of what kind of sub division is allowed and also outline the kinds of costs you would be looking at.  Then ask a builder to quote you for the new build – complete to occupancy so you get the full idea of the costs involved.  Make sure the town planner you use has previously worked with council or otherwise is fully conversant with local government and state planning rules. Once you have a fair idea of the costs, add 20%, because in my experience this is the amount that the budget of a development usually blows out by.  And lastly, compare all of this to what it would cost for your mum to simply sell it to someone else, buy a unit somewhere which is ready to move into, while you look all over Australia for the next hotspot and invest there.

Have a property question?    Ask Margaret!

Margaret Lomas

Margaret Lomas

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and Your Money, Your Call, both on Sky News. She is the founder of Destiny.



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