Subdividing a property provides potential high returns to property owners but there are also higher risks to be aware of. This is a great strategy to manufacture large amounts of equity and can be implemented to an existing property in your portfolio as long as it meets all of council's requirements. This blog will cover the Pros and Cons of subdividing a property.
The Pros and Cons of Subdividing a Property
Higher profits - a well planned project with a great product and in an excellent area can provide returns over $100,000.
Increase equity - subdividing a block in a great suburb can provide an instant increase in equity.
Provides multiple options - sell the land, build and hold or build and sell or a combination of the three.
Provides positive cash flow - sell off one property to pay off the other to be kept for immediate rental returns.
Smaller blocks - can be easier to sell to potential buyers requiring low maintenance.
Smaller blocks - the new blocks are now smaller in size which may not be as attractive to some buyers.
Could reduce value - the existing home could decrease in value with a smaller block.
Unexpected costs - set a budget for unexpected costs as you never know what might arise when it comes to removal of trees or services such as power, sewerage and water.
Longer completion time - compared to other strategies such as renovations, subdivisions generally take longer to complete.
Time delays - a neighbour could object to the project and cause delays in the project which will also increase holding costs. Slow approval times from the local Council can also push out the project's timeline.
Market changes - demand for the area suddenly drops and becomes more challenging to sell during the development stage.
Unreliable Professionals - can cause huge amounts of stress and delays in the project, it is always best to hire a great team and do the required background checks.
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