What was once the classic ¼ acre section is now becoming a thing of the past as owners are looking to maximise the return on their investment of their property by subdividing.
Subdividing can increase the return on the property with relatively little inconvenience eg no major improvements going on while you’re living in the property or no major disruptions which could cause hassles to tenants if the property was rented. Not all costs need to be outlaid at once which means that sometimes you can cover the costs through your own personal cashflow. It can also make the property more manageable and easier to sell – eg instead of a 100 Ha block you could have 10 X 10 Ha Blocks which may be easier sell because they are easier to manage for potential purchasers.
However there can also be pitfalls in subdividing your property.
In almost every case our clients who are wanting to subdivide have greatly underestimated the length of time it can take before the subdivision is complete and title is issued. This may not be their own fault – experts may have been consulted but often these experts will not clarify the exact length of time that it will take before title is issued on the subdivision.
When you subdivide you must require the Local council to provide consent. They may have stipulations on what is required from you before they will give this consent. This can include improvements to the property – eg moving of easements, drainage, water and other services, driveways, consent of neighbours. These can be costly and time consuming.
There could be shifts in the property market. Some property owners have anticipated that they could sell a property for what would give them a healthy profit only to find that when title is issued the markets have declined meaning they have to either hold on to the property for longer in order to get a better return or to sell at a lesser profit.
Timing is everything in real estate and the major issue with Subdivisions is that the timing is out of your control.
While there are still great returns to be made in developing property it is wise to consult those around you who are not only experts in their field but also those who have actually been through the process themselves. What you want to know from everyone is exactly what was required of them and when and how long did it take. What would they have done differently? And what worked really well.
Then work your calculations on worst case scenario – what would happen if the market has moved downwards, if it takes you a couple of years before title comes through, if you’re unable to sell this property when the title comes through?. Having this conservative approach is far more likely to give you a better return or at least allow you to more accurately identify the profit (or even loss) that you may make before outlaying any cash.
