A lot of people were left scratching their heads with a recent headline appearing on the front page of the newspaper: $2.1 million for this – is it worth it? The image showed a ramshackle home that looked like it was likely to collapse at any moment. But what the image didn’t show was that connected to that house was a second lot.
So, while the picture and headline were confusing, understanding the market and property values can easily make a lot more sense of this situation. Here we look at one into two lot subdivisions and why they make good sense for would-be real estate investors who buy in Brisbane.
The New Farm Example
To make it easier to follow the logic of the one into two lot opportunity, let’s stick to the example given by the news article. This New Farm property is a familiar sight to locals, but what many don’t see is the magic behind the dilapidated house. At first glance, a $2.1 million price tag for what is clearly a major renovator seems a little farfetched.
However, when you take a look at the property from overhead, the revelation is interesting. Why? The property can be subdivided into two lots each about 278 square meters. So, what appears to be a horribly overpriced single home is actually a diamond in the rough opportunity to buy in Brisbane that adds up to a lucrative proposition.
The Benefit of the Property
In this case, we are looking at multiple benefits. First, as mentioned this is a two-for-one price where you are getting two equal-sized properties of 278 square meters each once sub-divided. Next, when you look at the property, it fronts two streets so you can see the convenience of access should you choose to build a second home. Last, the property is what is called low to medium residential. This opens up the development potential for the property from an investor’s point of view.
Why is Low to Medium Residential Important?
Zoning is always important when it comes to real estate investments you buy in Brisbane as it dictates what can and can’t be done with the property. In the case of low to medium zoning, this is a good thing as you can sub-divide the property as mentioned above. However, you have more possibilities for making money from your investment because you can build multi-dwelling housing like townhouses or villas. This opens up your potential for profits.
Look at the Pricing
Next, using the same New Farm example, looking at what local homes on similarly sized properties sold for, you are looking at a possible $2.1 million for each. So while you invest $2.1 million, you stand the potential to double your investment. Of course, you have to consider the costs of development of the homes, but when you consider realistic earnings from your developed properties can be as much as $1500 to $1600 per week, you’re looking at about $156,000 total per year. So you can really see a respectable cash flow from your investment.
Looking at the Costs
But that brings us back to the cost of development and subdivision. In Queensland, while these prices vary, you’re in the range between $60,000 – $90,000. They also charge a $28,000 infrastructure charge per additional lot. When doing the maths, you still come out ahead in our New Farm example.
The Drivers
Where it can be risky going it alone as an investor is there are so many factors that impact real estate prices. The New Farm one into two lot is a perfect example of not understanding the market. While that opportunity received 58 bids, the question is would you have been one of them? Also, had you been one of them would you have understood when you are getting into overbidding territory?
Again, in the New Farm situation, the street itself is not in as desirable an area compared to a few streets over, but it is still close enough to offer potential. Other things to consider are more obvious like interest rates as this impacts your cash flow potential. What type of property to build also comes into play as you need to cater to the typical demographic who would be interested in living in that area. Different demographics have different needs, and perhaps more importantly different preferences.
The economy, policies, and taxes all also impact wise real estate investment opportunities. You might buy in Brisbane what seems to be an extra-large lot with plans for a one into two lot subdivision only to find the zoning is all wrong for such plans.
The Right Partner
In this case, we’re not talking about a partner in the investment, but instead a partner to help you find the right investment property. Your goal as an investor is to mitigate risk and find profitable opportunities. With all things considered it takes someone who explores homes professionally day in and day out in the current market as your best ally and key component of your risk mitigation strategy.
Again, New Farm offers a lot of lessons for the novice investor. It demonstrates how easy it is to walk by a perfectly sound investment opportunity fearing it is actually a terrible idea. And on the surface, it certainly is. However, what an expert has learned through trial and error is that what on face value seems like too much might actually prove to be one of the most lucrative opportunities you come across. You have to understand the context of the pricing to understand whether or not it will turn out to be a really smart buy.
The Bottom Line
When it comes to real estate investment it takes experience to recognise potential. The one into two lot subdivision certainly can be one of the most lucrative investments around if you understand the context of the pricing and how that will affect your earning potential.
As well, if you don’t understand zoning properly you might visually feel a property is ideal for one into two, when in fact the zoning is all wrong, or access based on the property’s location just isn’t viable from a subdivision perspective. It’s really important to understand the market, understand the context that these purchases are happening and make your pricing decisions based on the facts.
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