May 28, 2013 by Dymphna 8 Comments

Smart Subdivision Strategies

Today I want to talk about one of the smartest ways to increase the value of your property–that is, to subdivide it. By subdividing a property, you don’t have to wait for the market to go up to realize growth. Subdividing a block of land allows you to “force the market” by creating a new, second source of value or revenue where there only one before. This is a major way to move forward in your wealth process.

There are different types of subdividing and different ways, and categories of subdivision. Depending upon where you’re from, subdividing may be called by a different terminology, but at the end of the day, the process is pretty much the same.

Buy the right title

Now, when you do a title search on a property, you want to see the Torrens title on the block, which will also include any mortgages, easements, and other relevant information on the particular block of land. (If you’re investing in the U.S., you will see how much easier Torrens titling is compared to the title system over there.)

Most of you will either be investing in a property that has either Strata Title or Community titling.

The difference between the two is mostly in how the dwellings are arranged. Strata is a vertical subdivision, with more than one dwelling, where one or more stacked on top another or group of dwellings. Think of a multi-story block of condominiums, for example. On a strata title, title is issued on each individual strata and on each individual dwelling on each strata.

Community title more applies to a group of horizontal dwellings, detached, with common areas, etc., like a group of villas, for instance. This type of titling is also very common and much simpler to work with. Try to work with properties with either strata or community titling if you can.

Another type of titling is “company title”, where a building is split up as a company, where shares of the company are sold. Some shares are more valuable than others, but can be cheaper to use due to multiple ownership of the company shares and problems that come with multiple shareholders. Some may have legal or financial problems, which may affect the entire shareholders of the building/company.

Company titles are usually cheaper, but they’re very hard to sell and financing is harder to find, with only WestPac and St George willing to offer finance on company titling. However, if you’ve got a very exquisite, prime property, then it may be worth it; otherwise, company title is an unnecessary pain in the neck. It’s usually a good idea to avoid company title properties for these reasons.

Get your battle axe/hatchet
How do you know if your property is a good prospect for subdivision? The standard ‘battle-axe’, or ‘hatchet subdivision’, as the Kiwis and South Africans call it, is a very common and feasible candidate. This is where your property is situated in the front of a deep lot with the driveway going along the side, with a deep backyard behind the house.

What’s important here is to have a property on either side, as well as road frontage. If the minimum lot size is 450 square meters like it is in many states, the driveway will not be included in that lot size requirement. Therefore, you will need 450 square meters up front and 450 square meters in the back in addition to the driveway to be able to subdivide the property.

The ‘splitter’ and the ‘corner’ subdivision

Say you’ve bought a block of land that is very wide fronted.  The house is far on to one side with enough road frontage to be able to split it straight down the middle and then subdivide the block off. This is a good candidate for doing a ‘splitter.’

How wide does it have to be? Minimum width for blocks and driveways will depend upon your area, but generally, for driveways, the minimum is 3 meters up to 10 meters. These minimums will vary by where you are and the local requirements.

The corner block is where you have two road frontages on a block of land, with two possible access points onto the property. This is actually a preferred candidate for subdivision because of the two access points. And on a corner block, you don’t actually have rear boundaries like you would normally. Rather, you have two side boundaries, which can provide more flexibility in terms of building the second dwelling. Corners can be ideal for subdivision, especially as a first time subdivision, the corner block is the easiest to get approved and there are usually more building options in that scenario.

Beware, however, that if you have a lane on one side of the corner, make sure that the lane is usable by permit for access. Sometimes it won’t be allowed. The same issue turns up if the frontage road is a busy one that is not suitable for access onto the lot. These are just a couple of concerns to be aware of that you will need to talk to the local council about.

Ready to ride the ‘chopper’?

Now, say that you’ve several successful subdivision projects under your belt, you know what you’re doing, and you also happen to have really deep pockets. If that describes you, you might be ready for what I call “the chopper.” The chopper strategy means that you really want to get into the subdivision investing in a big way.

It also means that you have the people and the financing in place to put the whole thing together. You buy a large parcel of land, chop it up into smaller blocks, put in the roads, the infrastructure, parks, landscaping, the whole nine yards, as they say. With a chopper, you’re quite literally building out a whole housing development. There’s a lot of money to be made, true; but it’s not without quite a bit of time and effort as well.

Most real estate investors won’t want to get this complicated in their projects. Fortunately, there’s no reason they should have to. There is plenty of profit to be made on a smaller scale with much less time, money and risk associated with those deals.

Make steady profits with the ‘set and forget’ deals

The ‘set and forget’ subdivision strategy is where most people like to play in real estate investing. It’s relatively simple to understand and to do, and provides you with plenty of capital to move forward in your investing. With a set and forget, what you do is buy a big block with a house in the front, subdivide the block, build a house at the back and reno the front house.

What you do after that is up to you. You can rent both houses out or live in one and rent the other. Or, to get that chunk of money out of the deal, you can sell the back house outright and pay down the debt on the front house to where it’s cash flow neutral or just a bit positive.

When you do that, you will be able to pull out the equity to start again somewhere else. This is a smart strategy. The front property has increased in value from the reno, and you’ve paid down the debt on it at the same time. This will leave much more equity than there was before to pull out of the house. As I say, you can use that equity to go do another set and forget, or use the money to pay down another property.

There is much more to talk about on this subject, but for today, look at the subdivision opportunities that may be right in front of you!