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As an investor, there are many different strategies that you can employ to generate wealth, and a strategy that is great for instant equity gains is subdivision. But, while it sounds like an exciting project to take on, how do you actually make money from subdividing land?<\/p>\n
How to make money from subdividing land largely depends on how you choose to do it. One thing for sure though is that when done right, it can catapult your portfolio significantly in a very short time!<\/p>\n
Here\u2019s what you need to know about how to make money from subdividing land and what the process involves.<\/p>\n
First, let\u2019s look at the basics.<\/p>\n
Subdividing put simply, is to divide land into multiple sections that can be used for development or sale. Once a subdivision occurs, an investor can then place more than one property on the land driving up the value of the section from one dwelling on one piece of land, to potentially multiple properties.<\/p>\n
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Subdividing property is a great way to boost profits. When you divide one property into two or more you\u2019ve added value to the property simply by registering the new lots.<\/p>\n
Once a subdivision has occurred, there are multiple ways that an investor can make money such as:<\/p>\n
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Strata title<\/em><\/p>\n Involves converting a single title into multiple titles e.g. splitting up a block of 10 units on one title into 10 separate titles. This increases the value of the properties and it allows you the option of selling each one off individually.<\/p>\n Granny flat<\/em><\/p>\n Not every state allows for\u00a0granny flat<\/a>\u00a0construction, nor is it suited for every market. This is why it\u2019s important to know the area you\u2019re investing in very well.<\/p>\n Second property<\/em><\/p>\n Involves splitting a large block of land into two or more lots and then building a new property on the vacant land.<\/p>\n Raw land<\/em><\/p>\n A process that is much more involved and very capital intensive. Developing raw land requires not only a legal splitting of the property but also physically changing the use of the land.<\/p>\n <\/p>\n Finding the right property to subdivide is key to succeed with this type of investment strategy. The first step is finding a parcel of land large enough to subdivide. Different suburbs may have different rules around what you can and can\u2019t do so seeking advice early on could save you a lot of headaches in the long run.<\/p>\n Things to think about when you\u2019re looking at land or different properties are:<\/p>\n <\/p>\n A quality location should have strong rent-to-income ratios where typical tenants have the cash to also cover a rental increase.<\/p>\n It\u2019s likely that these locations are near you or that you\u2019re even personally familiar with them. As an investor, you need to be open to looking at growth areas in a range of different locations. This is where a good\u00a0property strategist or coach<\/a>\u00a0comes into play. They\u2019ll not only help narrow down your search to a handful of potential locations, they\u2019ll also reach out to local agents in those areas to get a better feel of the rental returns and demographic.<\/p>\n Ideally, you\u2019ll want to look for neighbourhoods that have more of a live, work, play dynamic. These are areas where everything you need or want (entertainment, food precincts, culture, wellness and natural amenities) can be reached within 20 minutes of your property.<\/p>\n Then, there\u2019s gentrification \u2013 this is where you could quite easily hit investment subdivision gold!<\/p>\n Location growth comes about through\u00a0gentrification<\/em>. Gentrification is the process of an area’s economics going up as more wealthier people move into the neighbourhood. This stimulates growth as they bring with them new money, subsequently attracting more housing, business and infrastructure.<\/p>\n The idea behind it is that wealthy people live where they want to live and they\u2019re willing to pay more for locations that provide proximity, mobility and liveability. So, if you follow the activity of well-off owner-occupiers, you\u2019ll know which areas are valuable for buying an investment property.<\/p>\n Here\u2019s a great explanation on all\u00a0six stages of gentrification<\/a>\u00a0and how to spot the process happening early.<\/p>\n Asking the question of how to make money subdividing land really relies on getting the right advice from the right experts. It\u2019s a technical process that can quite easily go wrong, and because of this, you need to put together a team of educated and experienced advisors and mentors to help give you the facts, and a solid process and strategy in order to make substantial gains from subdivision.<\/p>\n This is what we like to call your\u00a0six-star team<\/a>, which consists of:<\/p>\n <\/p>\n They\u2019ll help connect you with anyone else you\u2019ll need to call into the planning process such as architects, town planners, the council and even a good lawyer. More detail on this is below.<\/p>\n When it comes to subdividing there are many different laws, regulations, planning approvals and policies which unfortunately are not a one-size-fits-all. In fact, they can not only vary from the different states and territories, but also between different councils too.<\/p>\n Each subdivision will also be at the mercy of zoning requirements, land size and engineering standards.<\/p>\n The good news is that subdividing is a very common practice that takes place all of the time. With the right support as mentioned above, it really doesn\u2019t have to be the stuff of nightmares \u2013 actually quite the opposite when you get to the other side and start to see the coin roll in, and all of your efforts paid off.<\/p>\n Like any property venture, there are of course tax implications which you can read about\u00a0here<\/a>.<\/p>\n As mentioned above, location plays a big role in the success of a subdivision. On top of that, ask yourself the following questions to quickly spot an opportunity to force value through subdivision:<\/p>\n Next, you want to review local council\u2019s Development Control Plan to check for:<\/p>\n Choose corner lots or battle axe blocks for the easiest development. Always make sure you run a feasibility analysis before committing yourself to the project.<\/p>\n The following considerations comprise just a small portion of issues that will need to be addressed when planning a subdivision:<\/p>\n Subdividing a property is like running a business \u2013 there are a lot of moving pieces that you\u2019ll need to be across, but thankfully there are people who can help you with the process. Once you\u2019ve found a prospective property to subdivide and have done all of your due diligence it\u2019s time to prepare your development application.<\/p>\n Here\u2019s a list of professionals that could be involved.<\/p>\n <\/p>\n Gather your skilled team and prepare your development application.<\/p>\n Here\u2019s what you\u2019ll need to do:<\/p>\n Tip:<\/em>\u00a0Informing your neighbours about what\u2019s going on could prove beneficial to relations in the future.<\/p>\n Before lodging the application, schedule a meeting with the council. Bring your urban planner with you if possible.<\/p>\n Hopefully, by this point you will have established a rapport with at least one of the council members \u2013 a move which may prove helpful in your discussions.<\/p>\n At the meeting, discuss the plans you have in place to see if they comply with the council\u2019s guidelines. (If you\u2019ve done your research well, this shouldn\u2019t be an issue).<\/p>\n Finally, remain open to any suggestions that council members may have. As they very likely may reside in the area, they have a vested interest in the outcome, so consider your actions accordingly.<\/p>\n <\/p>\n Here\u2019s an example of how to make money subdividing land from\u00a0TRC-Gorod\u2019s<\/a>\u00a0lead property strategist Sam Saggers.<\/p>\n \u201cTo illustrate the benefits of forcing value through subdivision, let me share a story with you.<\/em><\/p>\n Recently, my dad wanted to get a better return on his investment than the 3.75% offered by his bank, so he rang me for my advice.<\/em><\/p>\n As you might suspect, I suggested investing in houses as a means to increase his returns. I recommended that he purchase a property which he could subdivide and quickly realise a great return.<\/em><\/p>\n So, he did just that.<\/em><\/p>\n After strata is completed and all costs accounted for, the price per unit is projected to be about $230,000 each \u2013 an increase of $107,000 per unit!<\/em><\/p>\n That means he will gain about half a million in added value! Much better (and faster) than any gains on 3.75% interest, wouldn\u2019t you say?<\/em><\/p>\n Needless to say, my father is thrilled with the outcome of his investment.<\/em><\/p>\n While this is fantastic, you don\u2019t have to strata title a development to make money through subdivision. Simply splitting an oversized lot can yield a great return.\u201d<\/em><\/p>\n \u201cMy mum also wanted my advice, but she was planning to sell.<\/em><\/p>\n Her home in Gladesville in Sydney was becoming unaffordable, and as she was nearing retirement, she planned to use the proceeds to fund her lifestyle.<\/em><\/p>\n I told her I\u2019d be happy to help her sell, but when I took a closer look at her property which was situated on a 1012 square metre block, I realised we could do something much better.<\/em><\/p>\n Her lot had been considered a standard size when she purchased it 30 years ago, however by today\u2019s standards, it was quite large.<\/em><\/p>\n Checking with the local council we discovered that the minimum block size was 500 square meters.<\/em><\/p>\n As my mum\u2019s house was in the back corner of the block, we were able to split the lot, create two separate titles and then sell the vacant half for $1.1 million dollars!<\/em><\/p>\n Now, rather than uprooting herself, my mum can stay in her long time home\u00a0and\u00a0fund her retirement!\u201d<\/em><\/p>\n <\/p>\n As you now know there\u2019s a lot to consider when it comes to how to make money subdividing land, but is subdivision profitable, the short answer is\u00a0YES!<\/em><\/p>\n As outlined in this article, when you understand subdivision as an investor, as well as the different types of subdivision opportunities available to you, and what to look for in the right property and location, then you\u2019re well on your way to making money from subdividing.<\/p>\n However, don\u2019t forget you will require a team of experts to support you in getting to the finish line.<\/p>\n In fact, the truth is you won\u2019t succeed as a property investor unless you have the right people around you. Especially when it comes to a technical investment strategy such as subdivision.<\/p>\nSUBDIVIDING FOR INVESTMENT PROPERTY<\/h3>\n
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INVESTMENT SUBDIVIDING RELIES ON LOCATION<\/h3>\n
GET THE RIGHT SUPPORT<\/h3>\n
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MAIN RULES OF SUBDIVIDING<\/h3>\n
SUBDIVIDING FOR INVESTMENT \u2013 HOW?<\/h3>\n
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YOU\u2019VE FOUND LAND, NOW WHAT?<\/h3>\n
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WHAT YOU SHOULD EXPECT WHEN SUBDIVIDING<\/h3>\n
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AS AN INVESTOR, WHAT DO I ACTUALLY DO?<\/h3>\n
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PREPARING YOUR APPLICATION WHEN SUBDIVIDING<\/h3>\n
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BEFORE LODGING THE DA<\/h3>\n
AN EXAMPLE OF HOW TO MAKE MONEY SUBDIVIDING LAND<\/h3>\n
<\/em>I helped him find the perfect deal in Mudgee, New South Wales. It was a two-bedroom, six unit development for $740,000 ($123,000 per unit) which had not been strata titled.<\/em><\/p>\nSTRIKING GOLD TWICE!<\/h3>\n
IS SUBDIVISION PROFITABLE?<\/h2>\n