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What every investor needs to know about subdividing and developing

One investment option which is very popular in Australia is subdividing and developing a parcel of land. This can include a wide range of options such as apartment developments, multi-unit projects, triplex, duplex or house-behind-a-house developments. The development will be guided by a wide range of variables including the size of the land parcel, what is permitted on the site and the cost of the development to the owner.

The motivation for subdividing and developing will also vary greatly from one investor to another. Some investors specifically seek out appropriate sites with the aim to sub-divide and develop as soon as possible, whereas others may own a home on a larger block and wish to sub-divide and develop to free up some capital for the future. The other option is to completely demolish any existing buildings on the site and redevelop to maximise the potential yield and returns.

If you are thinking about subdividing or developing a site, there are plenty of pros and cons to consider. You need to determine the zoning and classification of the land to establish if it can be subdivided and what is permitted. You can contact the local Council for this information or it is often available from their website. Alternatively, a qualified real estate agent, property investment specialist or surveyor can provide this information for you.

You also need to understand the financial implications of subdividing a property. Ultimately, it can cost anywhere up to $80,000 just to liberate a lot of land in the subdivision process and this is before you build anything else on the site. The price might sound hefty but there are so many expenses to consider including head works, site works, power connection, demolition, asbestos removal, restoration of old dwellings, design fees, soil testing, selling fees, conveyancing, council contribution, rates, taxes and more.

Any project analysis also needs to include capital gains tax implications and its impact on the feasibility of the project.

If the property is your principal place of residence and was purchased before September 1985, then a subdivided lot can be created and sold capital gains tax free. However, if a new dwelling is created capital gains tax will apply to the upside of the improvement.

If the property was purchased after September 1985 then the lot created may be subject to a portion of capital gains tax for any new dwellings developed and sold. If you are nearing or in retirement you should also seek advice on any potential impact subdividing land may have on access to the full or part government pension.

If you are looking to subdivide, it is also important to have a sound understanding of the different types of ‘titles’ available and the advantages and disadvantages of each – they include Green Title, Strata Title or Survey Strata titles. Click here to learn more about each type of title, plus the advantages and disadvantages of each.

The type of title you choose for your development can have significant implications to both you and any future owners in regards to cost, development timeframes and flexibility so make sure you choose wisely.

One thing you should never underestimate (regardless of whether you are a novice or experienced investor) is the amount of time you will need to dedicate to a development project. In reality, most investors are employed full-time in another industry and don’t have the time required to keep the subdivision and development process moving along swiftly. Even if you are retired, you may wish to give serious thought to whether or not you want to tie up the next two years of your life with this project or leave it to the experts.

Most smart investors choose to enlist some expert support and this is when you ideally want to find yourself an experienced and reputable ‘one-stop-shop’ who can help you with the entire process so you don’t need to jump from consultant to consultant, company to company. This will save you time, money and will make the process smoother and easier for everyone involved. It will also help you to identify the optimum development strategy for your site. Anyone can chop up a block of land and redevelop it but what outcome will deliver you the best returns? Who is best equipped with the strategy, experience, skills and services to help you achieve this outcome?

For example, Investor Assist (supported by expert teams across the ABN Group) is able to provide you with advice and assistance to guide you through the entire subdivision and redevelopment process from start to finish with the aim of minimising costs and maximising returns. This support is basically broken down into the following ten-step process:

  • Step 1: Obligation-free project assessment, feasibility and costing;
  • Step 2: Site survey and planning;
  • Step 3: Finance;
  • Step 4: Initial design;
  • Step 5: Internal specifications (to suit your project, market and budget);
  • Step 6: Development of the design concepts;
  • Step 7: Full written quotation (including site works);
  • Step 8: Council approvals and pre-construction work;
  • Step 9: Construction, completion and handover;
  • Step 10: Sale and property management services (if required).

There is plenty to consider when subdividing or developing a property but the process has the potential to be lucrative and very rewarding which is why so many investors do it. The workload, financial commitment and high level of variables and considerations is also what deters many investors but with the right support and expert guidance, there is no reason why you can’t make the opportunity work for you.

To find out more about subdividing and developing a new or existing parcel of land, we run exclusive development workshops that teaches you the systemised process to help you find the dollars in the dirt to ensure you maximise your returns on your development. To find out more about these workshops you can contact one of our property investment specialists here. There has never been a better time to advance your journey towards your own financial security.