Subdividing your investment property
When weighing up the potential of an investment property, it is important to look at the opportunity in its current form – and the ways in which you could add value. For example, a property with a home built towards the front of a generous section may be perfect for subdividing. Before you put an offer in, enquire with the council to establish whether this may be possible, so you get a more defined idea of what you’re investing in.
If the property were sub-dividable, that’s a huge additional layer of potential. Two more dwellings (say 3-bedroom townhouses) in a popular suburb of Wellington could attract about $600 per week but there is the cost of subdivision and building them.
Long term, a property like this could provide you with the opportunity of adding three properties to your portfolio – rather than just one. Once you secure this property, the land for the next two dwellings is effectively free.
When you are ready to further develop a property like this, your property manager is critical to helping you manage the existing tenancy when the building and subdivision is due to take place.
Often a small rent reduction will be needed for the property that has existing tenants in it while the subdivision and building of more dwelling/s takes place (things can become a bit of a construction site) but it is important that the existing property is not empty. There is usually quite a bit of work to do to prepare for a subdivision and anticipating that it could take about a year or more (especially if builders are busy) should form part of the strategy.
When you buy an investment property with subdivision potential, you should not be frightened of cosmetic fixes or of the further development as this will maximise rental return. It is also very important that you have developed a group of trusted professionals around you – your mortgage broker, professional property manager and your trusty builder.