Neighbour's house for sale - subdivision possible

[wheninrome]

Hey PTers.
Long time listener, first time caller.

The owner of the rental next door has put his house on the market. I've worked out that I can pinch approx 80 sqm from my house to provide the necessary space to subdivide his garden, splitting two titles into three. Because I control the required land to split it, I'm in the interesting position of being the only one who could do it. If you were in the same position, how would you determine whether it would be profitable?
I've got some estimates on council subdivision and works to bring services in, which is a big expense in itself, but the two biggest costs will be around building a new house and purchasing the one for sale. Any thoughts on how you'd spreadsheet these costs would be much appreciated. Much appreciated in advance for any help.
Michael

[Damap]

To keep it real simple initially you need to decide what you want to do first. If you're going to develop and sell then your main numbers are:

Value of new section and existing house on smaller site minus the cost of buying the property and the development costs.

So let's say the new vacant section in worth 400K and the neighbouring house on a smaller site is worth 700K.
Subdivision costs, assuming Auckland, are 150K so 700K +400K plus 150K = 1250K.
So if you could buy it for say 600 to 750K then it is worth exploring in more detail.

But this is your basic starting point.
If you want to build the new section then you add 400K for the house and change the vacant section to a new house price.

If these really simple numbers look OK then you go through the process of accurately costing it all and talk to a decent builing company.

[wheninrome]

Hey Damap, this is exactly what I needed - a simple look at a complex problem to figure out if its worth moving forward.
Your conclusion that it would be worth exploring if you could get it for 600k-750k: is this because you'd be looking at 200k-250k profit to make it worth your while after factoring borrowing costs?
Thanks for your thoughts.
Michael

[Damap]

Yes that's right, although there are lots of other costs that might come into it so I am just trying to give you a simple overview. Depending on your end qame you might be happier with a smaller margin. If for example you were going to build the new house and keep it as a rental then as long as it had 50 to 75K genuine equity in it you might be happy with that.

Assuming this is a money making exercise then you don't want to skimp on the profit. You may well find that providing you can buy the neighbours property at a reasonable price based on the fact it cannot be subdivided then you can probably onsell it with your approval to lose 80 metres off your site ot a developer and do absolutely nothing and make as much money as you would by doing all the work. This removes all the risk.

Example you buy house for 650K. You confirm with council that it is feasible to do a boundary realignment and that the property is then subdivisible. Once council confirms that you then relist property as subdivisible and see what sort of money developers will give you for it. I am assuming this is Auckland so you might expect a developer to probably offer you around a mil. Good profit for a few visits to council :-)

[wheninrome]

Thanks again, Damap. I wouldn't want to keep them as rentals. I also like your comments about getting subdivision approval then possibly onselling it without undertaking the build work.

[HattrickNZ]

Would it not be 700K +400K +150K = 1.25mil. + 400K (for 200sqm house @2k per sqm on emty section) = 1.65 mil
Then cost of sale price of neighbouring house on a smaller site and new house on new section has to be greater than 1.65mil to go forward with it?

[Damap]

Buy the neighbours place for 700 plus 150 subdivision plus 400 build. 1.25 all in cost. I subbed instead of adding apologies :-)