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Subdivide/build then sell or sell to developer?

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  • Subdivide/build then sell or sell to developer?

    Hi,

    We have a property that we can subdivide and put 2 new houses on. We were recently approached by a developer who has purchased the adjacent houses and have expressed interest in buying our house to develop all the land as a block. Our land is big enough to accommodate more houses, but because of driveway width and position of the current house, 2 new houses is the limit if we do the subdivision/build ourselves. If sold to the developer, they’d be able to use the land from adjacent houses to widen the driveway and put more houses on the land (remove the old house and potentially put 4-5 new houses on). They’d also benefit from our driveway for the other land (we are at the end of a long private driveway).

    We have only started doing the research, but was wondering if anyone can shed any light into what might be more beneficial for us? Have an idea of what the cost/profit would be if we subdivide/build ourselves, but unsure how we’d go about how deciding how much we should sell to the developer.

    The long term plan for us was always to put more houses and sell and move to another location.

    Many thanks in advance.

  • #2
    Hi,

    There is so many if's and but's and it really depends on your numbers.

    You need to think about
    - tax if subdivide
    - possible GST implication's
    - which option gives you the biggest return for the risk. A lot of our clients prefer to not be greedy and take an easy option that is within their risk level and financial capabilities.

    I would suggest getting the basic numbers together and then going through them with an expert. Work through what you make on each scenario such as, what it is worth as is, if you subdivide and sell the land, if your subdivide build and keep, if you subdivide build and sell, or if your subdivide build keeping some and selling some

    Ross
    Book a free chat here
    Ross Barnett - Property Accountant

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    • #3
      Hi Ross,

      Thank you for the info. From my understanding subdivision tax doesn't apply as this has been our family home for ~6 years, but is under 4500m^2. Will have to think about GST though. Funny how we think the option with the biggest return is the more risky...

      We have a meeting with an expert soon, just thought I'd try to get more info here as I prefer to have multiple sources of information if possible.

      The developer that has expressed an interest in our property asked us to give them a price, which we have not done, and they wanted to come onto our property to see what they think it's worth, we have also not said yes to that yet. Something to do once we have more info ourselves I think.

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      • #4
        lot less hassle selling to the developer make sure you get a good price

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        • #5
          That's our thought after some meetings over the weekend, meeting a few more people to figure out what's a good price. Thanks for the suggestion 😀

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          • #6
            I did a post recently on the prices/ profitability of various section sizes. Obviously it depends on location. Recently considerable flexibility has been applied to integrated developments giving 4 x 200 nett on 1000sq m. This allows a price cut of 100k or so on a build. At the expense of various things. Now these are on the market it seems to me they are slow sellers.
            However sections themselves are slow sellers as most seem to prefer ready made.
            There are complications to developing yourself. It takes longer than you think , costs more, and you have to sell to make a profit which takes time and is likely less. It would also be taxable.
            The builder has advantages contacts experience and wants a profit. Fair enough but often they will be far sharper than you. A neighbor had an auction passed in then sold at about 20% under valuation. Another sold at auction for valuation but still a good buy.
            You could get a valuation done or try to find similar sales. It should be worth more to the guy who has the adjacent property. He would probably want to avoid an auction. Good luck negotiating.

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            • #7
              Friends of mine just sold their Milford property to developer who had purchased property next door, he is going to build 8 units on the 2 titles. They are experienced in this type of situation and build high end admittedly, but it was going to cost them $8 million to build 3 units. (incl initial cost of existing dwelling). They could not see that the bank would lend them the money so they sold.

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