Subdividing property is like buying a whole cake for $30 and then cutting the cake into 8 equal slices and selling off each slice for $5. The sum of each individual slice is greater than the whole cake.
To ensure you maximise your profits from a subdivision and/or subsequent development, you will need to calculate the projected total cost base of the newly subdivided parcel of land, its estimated sale proceeds minus capital gains tax and selling costs to determine the profit. You will also need to estimate the value of the first and original parcel of land which is now smaller as a result of the subdivision. While land appreciates and buildings depreciate, you can subdivide land in most cases without significantly affecting the resale value of the existing building which subsequently resides on a smaller parcel of land after the subdivision.
Once the land is subdivided, you will be presented with new options an example of which is as follows:
Option 1: Sell subdivided land and use proceeds to substantially reduce mortgage.
Option 2: Develop and build new dwelling/s on newly subdivided land to either rent or sell
Option 3: Renovate house on original smaller land to either enhance rental rate or perceived value when selling
Option 4: Demolish original house to build new dwelling/s
There are many permutations within each option and the challenge is to find the best option. It should be noted the option with the highest profit may not necessarily be the best if the option requires a longer time frame and involve substantially more risk.
You need to take special note and be aware of the following issues in a subdivision:
1. Restrictions, covenants and overlays
The first point of contact should be to make enquiries with your local council to ascertain if there are restrictions and covenants such as minimum size of land and overlays imposed by councils to retain the character of the landscape. You need to be aware that not every property can be subdivided.
A setback is the area between a main road and the dwelling which cannot be built upon. Depending on the streetscape, different councils will have different restrictions and requirements on the area of setback. You also need to take into consideration as to whether existing trees are allowed by council to be removed to make way for development. In many cases, council may not permit trees which have exceeded a certain size or age to be removed.
Subdivision of land will invariably require you to provide street access and this may involve the construction of a new crossover / driveway. You need to be certain the new crossover do not interfere with existing drains, trees, electrical poles / cables or cause likely objection from neighbours.
An easement is an area set aside for the use and benefit of a third party. Most easements are created for purposes of access to sewerage, stormwater and power and are generally constructed along side or back boundaries of a piece of land. You are generally restricted from building over an easement although discussions with council and utilities may sometimes enable you to relocate existing easements to accommodate more effective development.
5. New title and approval
It should be noted you don’t require a new title to be issued in order to sell a subdivided piece of land or house. A contract can be conditional upon the new title being issued by a certain date.
Other related posts:
- Subdivision of land – Documents you need
- Subdivision of land – The Approval Process
- Subdivision of land – Calculating Capital Gains Tax