11 Steps to a Successful Subdivision

Steps for a Property Subdivision.

• Get your development Finance sorted out first! It’s important before you start looking at development sites you have a pre-approval from a lender in place. Make friends with a good mortgage broker. How much should you buy a development site for? Here is a simple formula.

• The New Residential Zones in Victoria. Understand the council planning requirements for dual occupancies or triple occupancy in the area. Read council’s planning scheme. The scheme will let you know the minimum size of land you’ll need for your dual occ and what type of development is permissible. Check for overlays- especially those relating to bushfire where restrictions could occur.

• Location. Infrastructure, availability of services, schools, shops and transport add value to your development

• Site assessment is the foundation. Search for land that meets the dual occupancy or triple occupancy criteria. Talk to us as we know which sites work. It’s a complex exercise best left to professionals who will be with you all the way. Size of land is important. If it’s a duplex site, you may need a minimum of 18-25 metres frontage in mid to outer suburban rings and less in the inner areas controlled by City of Melbourne, Yarra to name two.

• Title, Title Plan and Planning Certificates. Check the planning certificate to see if it is in a bushfire or flood zone. You can still develop in these areas but it will add to your build costs. Check the title for covenants or agreements.

• Building Cost Budget. Have your builder look at the site. This is very important as the builder will look at the land from a different perspective. We can assist you with the building process too.

• Development Feasibility. Run your feasibility to ensure the project will be viable. Run one in the reverse format to work out what is the maximum amount you should pay for a site. Of course this will not apply if you are subdividing your own home or land or doing a dual occupancy in your own backyard. You will need to find recent comparable sale prices from which you can base your end value estimate on this. Talk to agents about the current rental market and what rent could be expected to calculate the projected yield on completion. Most importantly, you need to have a good understanding of the build costs. The build costs will evolve over the design and planning process. Your builder can give you an estimate once a concept plan is available, but as the full town planning and building permit documentation is available, the builder will then need to run a full tender. You can cross check this against your original estimate. We advise to do a Cost Budget to set your goals and control any overspending. Over capitalising or getting emotionally bound to a development could cost you in the end.

• Negotiate best Settlement terms. If buying a development site, a long settlement period helps and obtain pre-consent from the vendor to lodge a Town Planning Application pre settlement. A nine month plus settlement will reduce your holding costs. Very often the vendor will be pleased to rent the existing home while you are going through the planning and building permits. You can get all the design work and perhaps even have the Building Permit approved before you settle on the land, this will reduce your holding costs. Make sure you include the subdivision on your Town Planning Application.

• Town Planning and Building Permits. Once you have all the approvals, you can then go back to your lender to obtain your unconditional construction loan. As soon as this is in place, the builder can start..

• Construction. The build phase for a dual occupancy should be around four months upwards and usually around eight months for a double storey to Certificate of Occupancy stage. Once the building works are completed, an occupation certificate will be issued. You can now have your dual occs tenanted. Don’t forget to order a depreciation schedule; this is simple, just email the plans and builders tender and any other cost details to your quantity surveyor.

• Build Equity through the property subdivision. You can now apply for the subdivision certificate and once council issues this, you can register the subdivision (after your lender has signed off on it). There is no need to register immediately if you are planning to hold and not planning to refinance as you may find costs such as rates may be a little less if the dual occs are kept on one title. You may decide to “flick” one of the lots with its own title to a builder or developer who is cashed up to start building now rather than waiting for the 6-12 month period it usually takes to come to this stage. So you have built equity and value through your subdivision.

This is a simplified version of what may occur but it’s not that straight forward and you really do need the time to work on this development strategy closely as mistakes can be costly when developing property. But you can have your cake and eat it too by using an experienced property development manager. You will learn so much from the process, can still keep your day job and know that you are in the hands of a professional. Then you may find you will be ready to do the next project on your own.