Subdividing Land For Profit – 4 Key Steps
Land subdivision is the way developers create new allotments and make profits.
When a developer or land owner creates a new allotment, they usually do so to increase the value of their land holding by utilising the development potential of their property. This is referred to as a subdivision, cutting an allotment into two or more allotments, creating an additional allotment/s and creating new titles.
Step 1. Conduct due diligence
Before you buy a property for development, the first step is to undertake due diligence. This is the process of gathering all the relevant information that affects the property. This information is mostly obtainable and available at your local Council via formal searches or simply by asking at the relevant counter. You can speak
with counter staff that are usually helpful but if you want more specific information ask to talk to a planner. Council’s planners usually have a roster for daily counter duty.
The information you are looking for can be divided into 3 components, viz; Physical attributes; Development potential and Constraints.
1. Physical attributes relate to the property’s size, namely land area and boundary dimensions and most particularly the frontage and the existence of any easements. Whilst council’s records will usually supply this information, doing a title search is the most accurate way to ascertain this information. This will also show the true owner. Other physical attributes include infrastructure that supply the site with essential services such as sewer and water. Issues surrounding these can substantially affect the site’s viability when it comes to re-development and it’s best to talk with a professional about these before finally committing to purchase any property for subdivision.
2. Development potential: The property’s zoning will tell you what you can develop on the site (and what you cannot). This information will extend to such things as density, plot ratio, building height, minimum frontage and lot size and car parking requirements.
3. Constraints: These may include what’s known as Overlays, or a DCP (Demolition Control Precinct) or other specific local neighbourhood plans, of which there are many, and which will likely override the site’s general zoning influencing the potential of the site to be developed. Other constraints such as flooding,
contamination or overland flow will impact on what you are able to do with the site.
TIP: While you are at the Council chambers do a quick check to see if there have been other development applications lodged.
Step 2. Feasibility
This may seem like a fairly simple and straightforward step to undertake but it’s surprising how many clients that come to us already in possession of their land that have not thought to do this. Simply put, it involves ascertaining the costs of doing the subdivision and deducting them from the net realisable value of the subdivided land. This will give you your profit. It is very important here to include ALL costs.
Step 3. Market Research
If your purpose in subdividing is to make a profit then you need to know what the subdivided land is worth on completion of the subdivision. This will involve checking the sales history of other vacant land in the vicinity or other comparable locations and comparing like with like. Also check to see what is actually available to sale presently which may compete with you for buyers. Try to ascertain the speed at which this land is being taken up, i.e. the sales rate as this will help you ascertain your holding costs such as council rates and interest on any borrowed money. At this time you should be speaking with several local real estate agents not only gaining their opinion as to what the finished land is likely to be worth but also getting an idea as to what it is going to cost you to market and sell for your feasibility. You will also be forming an opinion as to how competent these agents are and who is most likely to help you achieve your goals efficiently.
Step 4. Appoint a Project Manager
No matter how much you think you know yourself it is always advisable to at least bounce your ideas off someone who is knowledgeable in this field who is doing this full time for a living. This is most likely a property professional that has broad knowledge over a range of disciplines that will be required for your project. He will know which horse to pick for which course – that is he will be able to assemble the appropriate team to carry out your project and seek and vet their costing proposals. He will be able to assist you with steps 1 and 2
above too so it’s best to get him involved early in the piece. A good Project Manager will not only give you peace of mind but he will also save you both time and money – usually more than enough to pay for his fee.
What price peace of mind?