Help needed for newbie. Possible flip

Hi guys just wondering on your thoughts on this deal. I have found a property in a suburb about 20km out of geelong Vic. It is a single title on 940m2 with a 3 bedroom house on the front of the block and a 2 bedroom unit on the rear with a shared driveway The owner went to sell it 2 years ago but the realestate agent was asking way too much for it and there was little interest, so the owner took it off the market within 3 weeks. The realestate agent told the owner at the time that he would do much better if he sub-divided it and sold it off as two lots, but the elderly owner said he couldnt be bothered. The owner now is happy to sell it to me privately and I could get it for $400,000 from him, which i think is about 20-30 grand under the current market value, because the market has changed a bit from 2 years ago. I know that if I sub-divided it I could get 220 for the rear unit and at least 280 for the house on the front of the block. I am wondering if this would be worth pursuing, considering a sub division would cost about $15 grand plus all the stamp duty I would need to pay. Also wondering if there would be a way I could get the sub-divsion done (i am told it can take up to 12 months) and basically sell it before i have to pay for it?? The other problem is the capital gains tax, so I think there may not be much profit left after everyone takes there cut...... any thoughts would be great. thanks :)

You could get an option on it and sell the iption to someone else. But extra stamp duty on options in Vic now.

Terryw
Finance Broker
Solicitor

Have you called the council to ask how long the approvals are taking in the area? Tack on about 3 mths and you may have a clear picture of a time frame. I heard of approvals going through in under 3mths but depends how motivated the council is.

I would think that if it is just a straight split no buildings to approved it would get though relatively quick. If you are VERY confident in the profit you could make you could ask for a long settlement say 120-150 days to try and get this through. But as previous posts have discussed if the sale falls through the vendor not you will own those plans.

Think it over, compare it with doing some backyard splits and see how the figures come up. Also you need to start somewhere. It is amazing how much you can learn through doing. But only if the figures and risk stack up.

D

Work Smart, Not Hard.

I see most developers requiring a 15% to 25% premium on the back end to do something like this and that is how I would appraise it too. Assuming your figures are accurate (and as an appraiser I never really do that), you are looking at a $65,000 profit. That barely qualifies at 16%. Your figures have to be spot on (i.e. I would like to see buyers lined up). There is a lot of room for something to go south here. The cost of splitting could go up for a lot of reasons, the approval proccess could take a long time, the exposure period and marketing times could become extended (don't know the market), are you sure of the useable area (i.e. wetlands, topography). You have no idea how many times I see developers get into something not knowing what is useable - Get a survey to be sure. 

But it could work out well. My advise is - don't leave it up to chance.

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I just want to ask why the subdivision will cost $15k? Do subdivisions usually cost that much?

Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just A Click Away

CGT may not be too bad (tax is a good problem to have because it means you're making money)... however, you're right to take it into consideration because you need to think "would I get better ROI somewhere else?"

...also, if it takes over 12 months, you'll probably get a 50% discount on that (but check that with your accountant)

Chiz
"Inspect and Adapt"

Alltheway,

Sounds like the deal could stack up if you're patient and well informed, a couple of considerations in the form of opinions:

1. The TPP should not take too long, as the second dwelling is already there the application is an "as of right" application to sub-divide the land. Obviously there is no discussion to be had about the aesthetic merits and other town planning considerations when it's already built!
2. You can enter into whatever contract you like with the vendor, as long as you both agree to the terms and sign the contract. For example you could request a contemporaneous settlement whereby you align the settlement dates of vendor and purchaser. You are taking a risk and will be expected to underwrite part of the risk.
3. There is a process to follow in having a sub-division certified, so make sure you understand it or engage someone else who does.

You might like to consider making an offer to purchase the property conditional upon the POS being approved within a certain timeframe (often called a sunset) and although you may pay a little more, you'll risk a lot less.

Hope it works out.

Design & Build Consultant
http://brutalart.com.au