For those looking to either start an investment portfolio or expand on a current investment strategy, property investment presents as a viable solution. In fact, oftentimes, this proves a highly profitable investment strategy.
However, with dwindling pieces of land on offer, it can be harder than ever before for investors to actually break into the property landscape or even expand their current portfolio.
By looking at different strategies such as subdivision and narrow lot homes, investors immediately expand their opportunities and perhaps most importantly, the ability to generate increased profit.
What is a subdivision for investment purposes?
Put simply, subdivision revolves around dividing a piece of land up. Once the land is essentially broken down into individual segments, the investor can in essence, place a property on each piece of land.
When it comes to subdivision, it’s important to research minimum lot sizes before embarking on any works. This is because minimum lot sizes may dictate that your parcel on land can only be subdivided into two parcels rather than three or four.
The benefits of subdividing a land for a property investor
Subdivision is a great investment strategy as there are many different ways to make money. These different options range from developing the land or keeping the lots vacant to selling one or more of the lots.
The benefits of subdividing include:
Developing the land to house narrow lots that can be sold for a profit
Holding the lots vacant and waiting for demand for land to increase the value
Developing the land by adding another property that can be sold or rented
Selling one of the properties to reduce the debt on the remaining lot
Renting out all properties to create cash flow and passive income
These options are largely beneficial because any subdivision works undertaken will add money. This is because what started as a single piece of land able to house one home is now multiple parcels of land able to house multiple homes.
While cutting down the sizes of blocks may seem counterintuitive, smaller blocks are rising in popularity. This is largely due to the fact that potential buyers are increasingly favouring low maintenance homes.
The variety of options when it comes to subdivision makes this strategy an attractive proposition for seasoned investors looking for multiple property investments. It’s also attractive to green investors looking to build an investment property that can be rented out.
Four profitable subdivision strategies
Subdivision offers a wealth of opportunities for investors. You can perform a knock down rebuild. This essentially means building your dream home on one lot and selling the other parcel of subdivided land. You may even choose to subdivide and build a granny flat to obtain rental income. The options are endless and profitable too.
Knock down rebuild – block subdivision
When it comes to block subdivision, there are many approaches to take. Firstly, investors may choose to knock down the existing house and subdivide the block and build for instance, two narrow lot homes.
This is a profitable strategy as firstly, there is no stamp duty to pay as you are building on land you already own. Secondly, you are adding value to the property, which reaps benefits during a sale or when negotiating monthly rent with potential renters.
Another approach is to knock down the existing property and subdivide. After subdivision, as an investor, you would keep one block to build a home. However, you may sell block number two in order to fund the building process occurring on lot one.
This is also a profitable investment strategy. This is largely due to the fact that subdivided blocks are normally narrow lots. This type of lot encourages the building of two storey spaces. The modern home buyer or renter is looking for house space not land space.
Subdivide and build a granny flat to rent out
While not every state allows the building of a granny flat, you can build this structure on a WA property, pursuant to lot sizes. However, despite this strategy being subject to rules and regulations, it typically produces a great return on investment.
In fact, granny flats generally have a 15-20% return on investment. Additionally, they can be rented out. For investors, it means that they may live in the original house, subdivide the land to house a granny flat and receive income from renters. All of which essentially means unlocking equity in your own backyard.
Strata subdivision
Another strategy to consider is strata subdivision. In essence, this means splitting up a block of units that are on one title. For example, the block has five units on one title. After subdivision, each of the five units would have their own title and could be sold individually.
Raw land
A raw land subdivision strategy is an intensive process. For example, there are zoning restrictions that require consideration. With this in mind, developing raw land involves subdividing the property and potentially needing to change the use of the land.
How to get started
Like any investment strategy, subdivision and narrow lot homes require research. This is largely because not every subdivision stands to earn a profit. Much like traditional homes, investors must look into elements of location and of course, the supply and demand ratio.
From there, as subdivision is highly regulated, investors should look to engaging a buyer agent. This is because a real estate professional will be able to provide information pertaining to minimum lot sizes, building restrictions and zoning requirements.
While the buyer’s agent is looking into elements of feasibility, investors employing a subdivision strategy should engage with home builders. Plunkett Homes will be able to provide advice and options for building narrow lot homes efficiently and effectively. We can also provide expert advice on granny flat developments and double storey homes.
With the Perth market continuing to grow and a marked lack of property supply, finding lots that can be subdivided is now more important than ever. Especially if you are an investor looking to diversify or create an investment portfolio.
By taking advantage of subdivision rules, investors can essentially maximise land in order to ensure that whatever subdivision strategy they use is profitable in the long run. To help your subdivision plans come to life, contact Plunkett Homes today to talk through the different options.
