How to Make Money Subdividing Property in Western Australia
As subdivision consultants, we have a lot of people asking us how to make money subdividing property. In these daily client interactions, I find myself mentioning a few things so often I thought it would be great to discuss them with our online readership. Knowing how to make money subdividing property can be a tricky business if you don’t understand a few fundamentals about the process, the costs involved and whether the property you have is actually sub-divisible. This article will assist you by giving the answers to everyone’s favourite questions. It also gives a few professional pointers that will effect profitability you need to consider if you’re thinking about subdividing land.
Can I Subdivide My Block of Land?
This is a reasonable question, and one we are asked daily at FLYNN subdivision experts. The answer is not always a straightforward yes either.
People have different goals in subdivision; some are looking build their property portfolio, others to gift land to their children for example. Your goals and circumstances will determine what it is that is most important to you when discriminating whether to subdivide or not. Just because you can subdivide does not always mean it is the best option for you to achieve your goals. Neither is the property gem you have found on the market always what it is made out to be.
The most important parameter to consider when answering the question “can I subdivide” is correct zoning for the block of land in question. The parent block must be large enough to create lots that will comply with the minimum and average lot sizes in the R-Code requirements for that particular zoning. Zoning requirements and how the r-codes affect you are discussed in more detail in this section of our website. The r-codes also have other requirements that must be met, such as minimum plot ratios, street setbacks, access leg widths and other important planning specifications. You can learn more about this on our can I subdivide land web page.
How do I subdivide my block of land?
Unless you are doing built strata, which is dealt with at a local government level, all subdivisions in Western Australia are managed centrally by a state body called the Western Australian Planning Commission (WAPC). The WAPC handles all applications for the subdivision of land as either a Survey Strata or a Green title, and has the power to approve or reject each application on a case by case basis.
Subdividing is a multi step process that can be broken down (in a simplified set of steps) like this:
- A Feature and contour survey and draft overlay showing the proposed subdivision is prepared and submitted to the WAPC with a Form 1A. The WAPC gives a decision letter either rejecting or conditionally approving the subdivision. This is called a decision letter and in the case of a conditional approval the conditions in the letter form the scope of the work for the rest of the subdivision process.
- You have 3 years to fulfil the conditions of the subdivision decision letter. Certificates of completion, showing that conditions have been fulfilled are submitted with a form 1C to WAPC for clearance If the commission is satisfied that all conditions have been met, it approves the subdivision.
- This approval is then taken submitted to Landgate with the assistance of a settlement agent, so as that individual titles can be released for the new land parcels created by the subdivision
Remember this is a simplified overview. For more details on the difference between green title, built strata and survey strata subdivision, visit the Subdivision FAQ’s section of our website. A more detailed overview of the subdivision process, broken down into more stages, can be viewed on our how to subdivide land page.
How to make money Subdividing property – Cost Parameters
If I had a dollar for every time I was asked the question ‘how much does it cost to subdivide’ I would probably be on a private yacht in the Caribbean.
There are a couple of things I have to explain when answering this question.
As already mentioned, subdivision is a multi step process.
Until we get the decision letter back from WAPC there is no way of guaranteeing what will be on that list. It is this list which provides a concrete list of what we are going to have to do to get the subdivision approved.
Without a full list, you cannot price the whole subdivision without some element of guesswork. Of course, that is not to say that with experience, you can reasonably foresee what you might need to do, you just can’t 100% guarantee it until the WAPC decision letter is returned. Past experience tells me that you are usually looking at things like (but not limited to!!):
- Drainage and drainage design
- Engineering for 1. And 2. Above
- Crossover installation and driveways
- Tree removal
- Surveying fees, WAPC fees
- R code compliance upgrades to retained dwellings
- Council co-contributions
- Western power and watercorp contributions
- Sewer extension
Many of the Items on this list need engineering drawings and some sort of parameter by which to ask a contractor to quote on (if you want an accurate price!). By way of another example adding difficulty to the cost estimation; Western Power won’t even give a service proposal quote until we have a decision letter from WAPC to present to them.
What it comes down to is that until we spend some money on planning, we can’t find out how much the subdivision is going to cost to a high degree of accuracy. Anyone who is telling you they can is quoting you a ball park figure with a nice fat margin in there to cover their A$$. Not really a great start if you are looking to minimise costs on your subdivision!
At Flynn, we promote a step-by-step approach; feasibility study first, then subdivision application, and firm prices for siteworks thereafter once we know the specific conditions for your subdivision form the WAPC decision letter.
The great advantage of this approach is that it gives everyone greater control of cost and decision-making, and doesn’t lock the client into excessive lump sum contracts. It saves the client money, and saves us face! Knowing how to make money subdividing property comes down to research and numbers, not guessing. This means starting with a feasibility study, to make sure you are going to make money. If you would like our expert help performing feasibility analysis on a site, follow the link to the feasibility studies page of our website to learn more about this service.
Never forget that each subdivision is a bit different than the next. Asking me how much does a subdivision cost is a bit like asking me how much does it cost to send a child to school; it depends on where you are going and what your goals and objectives are.
Before you think about how to make money subdividing property you need to think about your goals. Goal setting is important to me, it guides the subdivision strategy. As the saying goes – “ failing to plan is planning to fail”.
I often say to my clients to begin with the end goal in mind. More often than not, this is to make a profit. To Help with that end, and in no particular order, I have included a few simple tips of my own below to ensure you don’t wind up with an upside-down smiley face at the end of 12 months of wrestling through your first subdivision:
- Spend some money on decent consultants and design people. As so often in life, you get what you pay for. Poor or inaccurate workmanship in planning documents is the single leading cause of application rejection in my experience. The application fees are often worth a lot more than the money you save using backyard operators.
- Save money before you start. There are unfortunately not an insubstantial number of clients who come through my door seeking to cut costs and keep an extremely tight budget because they paid a buying agency and/or the seller of a property too much in the first place. I know haggling does not come easy to most people, but try it some time when purchasing an investment property. It costs absolutely nothing and is the simplest and most effective way to increase your margin and free up cash for the development!
- Tax consequences matter. The saddest moment in my professional career was when a gun client of ours did a splendid project, made a heap of money and then couldn’t come back to do another subdivision. He blew what he considered to be all his profit on a holiday, a caravan and a car, and was then hit with an enormous tax bill he had not considered. Most Australians work from January till April, hours per dollars of Tax they pay, for the ATO. Tax is real and you will pay some when you sell your blocks. Wouldn’t you rather know about this before you start? Talk to a tax advisor!
- Research your area. Its as simple as logging onto REIWA and looking at what other blocks are for sale from other developers in he area. If you’re considering developing in a particular suburb, and there are many lots already for sale; ask yourself the question “what is gong to make consumer buy my block of land over someone else’s?” There are strategies to make your lots more appealing, but better consider the implications of those strategies before you begin.
Profiting from subdivision is easy if you understand the costs and process involved, and you do the planning work at the early stages. We hope this article has helped answer some of the important questions about the subdivision process and costs you may have. The more you learn about developments, you find out there are always new questions. That is part of the fun, and why FLYNN are here – to guide you through the process. Give us a call today to talk about how to make money subdividing property.