The Subdivision Process Explained

Doing a subdivision can be a confusing process. Luckily Ben has recently done a subdivision of his own and talks us through the subdivision process, the timeline as well as the costs involved.

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Transcription:

A lot of people are interested in doing subdivision or subdividing property, but they don’t know where to start and so today I have with me Ben Everingham from pumped on property, who’s recently completed a subdivision himself to talk through the subdivision process, how it happens, how it works, and how if you want to go and do it, you can do it yourself. So Hey ben, thanks for coming on and sharing this today. Hey Ron, how are you? Yeah, good. So you’ve recently done a subdivision. We want to talk through. We’ll start with high level staff choosing the right block for a subdivision, but I want to spend most of the time talking about the specifics of after you purchase a property, how do you actually go about doing a subdivision? Who Do you work with? How much does it cost, how long does it take, all that sort of nitty gritty stuff, which I think people will absolutely love because subdivisions always thrown out there as a great investment strategy, but no one really talks about how does, how does that actually work and can be quite confusing and overwhelming for people. So let’s start high level choosing a block for subdivision, what are some criteria or what are some recommendations you have for people? Yeah,

subdivisions or like anywhere else you choose your marketplace first could be Sydney, Melbourne, Brisbane, and then within that there’s local cancel areas in each local council area has different rules around what is classified as subdivision. So when we’re talking subdivision, in this case I did it in Brisbane, in North Brisbane actually by talking about getting a big block of land legally dividing it into two separate lots and therefore being able to build a, the two houses or sell a piece of land, et Cetera. So that’s the subdivision we’re talking about or what is the subdivision? Is there? I thought that was the only subdivision, uh, like different cancer. There is where I have different tents. So these things like sample them, duplexes, some call them other bits of the different bits and pieces like, and some area, some counselors don’t even actually pull with a subdivision. Like it’s something completely different. Okay. So just as context, we’re talking about

one block of lands, cutting it in some way and turning it into two blocks of land was separate titles.

Yeah, exactly. So you know, it’s about understanding that town plane, which he can do from ringing out the local council. You can do from jumping on their website and you can do from picking up the phone and talking to a town planner and we sort of, as you said, don’t have to go through all of that.

Let’s go through how does someone know if you’re choosing a block of land, how do you know is that block land is sub dividable. So

that’s a really good point. So generally within a local council and there’ll be certain areas or parts of a suburb that you can legally subdivide on. So let’s say that one part of the suburb has residential a, which is just so in for normal houses and then they might be residential b, which is an area or a series of pieces of land which could be if they comply with the other things that you know, the council’s asking you to do. So find that out, whether it’s a job, um, it’s about jumping on the council’s website, reducing it down to like the specific site level and putting in the address and then having a look at what overlays sit over the top of that. So whether it’s residential I obey and again, that’s just an example of the terminology and the counselor that I’ve divided in, but in other areas, unfortunately there’s no luck. Australia wide town planning code, um, which makes it really freaking difficult to do these things in areas.

And if someone was just getting into this and wanted to do subdivision with the best bet, be for them to just contact a town planner and work with the town planner to find the right site and to make sure they can subdivide. It sounds quite complex to understand it all. To know whether you can do it or not.

I think it’s going to be really difficult unless you’re a builder, an engineer, to figure this stuff out yourself. I think it would be significantly better, which is what I did is I went and paid for an hour of my local town planner who specializes in this area. It’s time we sat down and I said to him, what would you be doing right now? Like where do you see people because he’s the one that’s seeing all the projects go through and who’s making money and who’s not. I said to him, where would you be spending your money right now based on the projects you’ve seen come through? And then he said, they suburbs have this type of opportunity at the moment. I think you should focus on them. And then he helped me write out as a list of rules like the streets I should be looking at the particular land size I should be looking at in those other features that are important to qualify at all the shit and the market. That doesn’t make sense.

Yeah, so you just paid for an hour of the town plan as time went to the office and then talk through all of this and walked out with a list

with an exact plan and this is exactly what I need to find if I want to actually legally do this and that made it so much easier because 99 percent of stuff just didn’t make sense.

Yeah. I think if someone’s going to be serious about subdividing, this is something that’s going to be worth the money rather than trying to do it yourself because the worst case that I can think of, well not the worst case, but a bad case would be if you went out, you wanted to do a subdivision, you bought a block that you thought was right for it and find out that no, you’re not allowed to subdivide it or the council won’t let you.

That’s absolutely deadly because generally overpay for a piece of land that could be subdivided. So if sometimes I’ve seen this in Brisbane all the time and in Sydney agents don’t even know the town plan. They might save it. This block has potential to be subdivided and then you look in the town plan has changed in the last eight months and you legally can’t do it anymore, but the agent wasn’t aware so you’ve really got to do your own due diligence here and really know what you’re looking for before you even start looking for it.

Yeah. So you’ve got a high level. You’ve got to know what you can buy. You’ve got to ideally work with the town planner so you can buy right site. You want to buy the right side at the right price as well. Um, and then you were saying off video that when you make an offer, you’re working with the town planner during, before you actually settle on the property.

Yeah. So what I do is I have a 14 to 21 day due diligence period. I have a 21 day finance period. Um, and I’ll have like a 40 to 60 days settlement period when I’m doing a subdivision. And what I will do is during that 14 to 21 day due diligence period, I will get the builder out to the site. I will get the town planner to, to review the site and as I’ve just found out from going through these myself, the town planner will introduce me to, um, like a civil engineer or a con, like I’m an engineer who will also do some preliminary checks. And again, it’s not just because all of those guys are saying it looks good, doesn’t mean that you shouldn’t also be getting on the phone to the local town planner at the council and asking them if the site compliance as well. So I’ve got the builder to verify it. I got the town planner, I’ve got the engineer and the local representative at the council and I felt by the time I was ready to go on to due diligence, I had a rough idea of the total cost of the project, the total timeframe for the project and about a 99 percent confidence rating that I could actually subdivide that site. Which was the most important thing to me.

So is the goal here that you’re going through this whole process before you’ve paid your deposit on the property or so that you can pull out of the property if it doesn’t meet the specs and you’re not going to be able to sub divide, is that the whole purpose?

One hundred percent? That is exactly the purpose. To do your due diligence before you’ve got any money down and you’ve got any risk in the game.

Okay. Yeah. So obviously then you can pull out if it’s, if it’s not going to be able to be subdivided and you can go and find one that you can subdivide. Okay. So now let’s assume that we have purchased the property, we’ve settled on it, uh, what is now the process to actually go ahead and get that block of land or that block of land with a house on that sub divided?

Yes. So the first thing that I did was set up a spreadsheet. It’s very, very important to track your costs. So there’s three sets of costs with any property. One is the initial entry costs, one is the holding costs and one is the exit costs and it’s just good practice to get into really keeping a candidate those things. Um, so my town planet estimated that my costs of the subdivision would be that 70,000 bucks, which was actually significantly more than I expected because I was like, oh, he’s fee might be five grand and then there’s the council contribution fate, but they’ll, all of these other things that I’m lucky he told me to expect. Um, I also thought because it was just such a simple piece of land that it might take me two to three months. They get the subdivision through. Obviously I bought this block in December and it’s now July at the time recording this. So it took longer than expected as well. Probably a month and a half. That was my fault. And month and a half of that was um, my advisor not setting my expectations correctly too. So in terms of the actual costs associated with the project, should we, should we break them down or.

So let’s talk about how you’re saying. So holding costs a pretty simple, right you, you’ve purchased this block of land, you’re go to pay a mortgage on it, you’ve got to pay your council rates or that sort of stuff. So that’s the holding cost. The longer that you hold the property, the longer that you’re paying interest and all of that sort of stuff. So that will, should make sense to most people out there. What I would like to write down is that $70,000, because I remember the first time that I heard how expensive subdivisions can be. I was flabbergasted as to just how much money it can cost. Two on a piece of paper, draw a line down on the land and to turn it into two titles. So yeah. Can we break down that cost and to see why. Why is it so expensive?

I still can’t tell you what. So expensive. I know that the Australian government and government takes a shit load of money out of property and you know it’s, it’s just the way I’ve been collecting taxes. But the reality is like you’ve got your $28,000 or so contribution fee to the council for the actual, like to turn it from one lot into, to um, you know, you’ve got your town planning phase which weren’t significant. I think I paid about $3,000 for those. Um, you’ve got your engineering fees, which again weren’t significant and maybe paid another $3,000 owed for those. Um, then unity water, which is like the water provider steps in and asked for some cash. So what I had to do there is get them out to the site and they identified that there wasn’t, um, you know, to syringe connection points into water connection points on each of the lot.

So I had to add them, um, you know, they took literally about $20,000 from me to put in these civil lines into a PR to approve them as well. Um, yeah. So like, you know, it doesn’t sound like a lot, but then when you start adding up the different bits and pieces associated with the subdivision, it, all, it all adds up. And I think Sarah might be required. And what unit he charged me, like it might’ve even been close to the sort of 25, 30,000 bucks for that. So it all pretty quickly start stacking up.

And so throughout this process, are you, do you know what to do at each step of the way? Maybe you’ve done it before or do you work really closely with the town planner and they talk you through these things? Like how do you know that you had to get uni water out to the site, etc. Who are you working with to kind of help you along this process?

Really good question brian, because I’ve helped clients do it before, but this is the first time obviously back on ways to help people do that. Um, We don’t do that anymore, but you know, I just sat down with my town planner at the very start and I said, can you please write me an email with every single step of this process from start to finish? So I just had this one page piece of paper with rough timeframes and rough costs around each of those steps. Now as you know, like I’m pretty ocd and a bit of a control freak so I don’t go into a subdivision wanting it to take longer than my expectations have been set and I want to know what my costs are going to be because obviously this is a moneymaking thing for me, otherwise I wouldn’t be wasting my time doing it. So I sat down and had this, you know, a full page with a list of what’s going to happen at each stage because I didn’t know personally, like I hadn’t physically done it for me before. um, and then I just had like estimated completion date, estimated cost, actual completion date, actual costs that I was tracking all the way through. Um, and as I said, it took significantly longer than I expected it to life almost twice as long as I expected it to that area.

Yeah. And so I guess the exact steps of what you need to do will vary from area to area and council to council, which is why you need to work closely with your town planner. And I think that idea of sitting down with a template town planner and getting that list of, okay, what are the steps in the process? How much do they Roughly cost, how long will it roughly take, will really give you an expectation of what it’s gonna look like moving forward. Did you hit any headaches where you got pushed back and said, no, you can’t subdivide.

We didn’t have any headaches from that perspective because I would never bought the block if I wasn’t 100 percent confident that we could. Um, but we did have definitely headaches in the project. So one of those headaches was um, after we, like when we got to the site, um, you know, I needed to provide the connection points for unity water to go out to the site and actually, um, you know, do whatever they needed to do. And then we couldn’t actually find the sewer connection point and we couldn’t find a water connection point on the site. So this is a 1300 square meter block of land. Actually had to pay an extra thousand bucks for a company to go around and stick a pole in the ground and then hit it. This is just Beyond me, man. It’s like, you know, like they actually walked around the site with a stick, like a needle stick and poked it into a pipe and went, oh, there it is. And they tracked it back to the connection point. Like this still happens. Life with satellite technology the way that it is. Definitely tell that it’s a council run operation.

Well, I guess these oldest sItes that were built years ago, the plans might have been lost for them or not drawn properly or I don’t know.

That’s exactly what happens. Like the cancer doesn’t have accurate records of all the oldest states. Um, and because the water’s been privatized in most parts of Australia needed as the water company. So that was an interesting thing. Um, another thing was so thousand dollars, man with stick. I’ll literally write, man, we stick on my leg. Exhale, stretch. It’s just, how do you describe it? Like, what, what is this man? Um, so another thing was, um, I thought um, with water, with water, things like my advice had been that you pay it on delivery, but after waiting for about five weeks for delivery, I found out from ringing the water company that they needed that invoice to be paid up front before they would actually go and do anything, which was wrong advice from my town planner. Um, so that was a huge amount of time wasted. The counsel also wanted me to plant some trees to get the development approval done at the front of the house, which is insane because they’re vacant lots in the builder’s going to knock those trees over to put a freaking driveway there anyway.

But did you plant the trees? Planted? Trey’s got photos of them, sent them to the council, which again was something that I didn’t realize I had to do. The biggest lesson that I learned from this process though is you need a good team in place that knows their stuff and you need to manage that team. So I, I just, by the end of it was sending my town planner and engineer and email once a week with simply the words, where are we at, what support do you need from me, what’s the next step? And every week I’d get that response and if I hadn’t been on them, I reckon I’d still be mucking around with this right now. like it takes these personality types that are the engineers that are the town planners that have all of these projects going at once, just aren’t naturally like the best communicators in terms of giving you the update. So you’ve got to be very, very proactive with your team in terms of chasing them up to make things happen. Because if you’re paying interest on a project and the project’s not moving anywhere, then you’re just throwing money down the drain. Totally.

And so we hope that this gives people an overview of subdivision and how to go about it. Obviously this isn’t a clear step one, step two, step three, but it is definitely more than most of the stuff that’s out there. So if you guys are interested in subdivision, if you guys are pursuing subdivision, then this should give you a good idea of how to go about it. So massive thanks to ben who has come on to share this because he recently did himself just want to clarify as well that this isn’t something that ben does for his clients. So we’re just creating this video to help you guys if you want to do it yourselves. But yeah, it’s not something that either of us can actually personally help anyone with such someone wanting to make that clear to you guys out there. But I hope that you enjoyed this video and found it interesting.

So one thing that I just wanted to touch on to finish off the video is with subdivisions, what I’ve learned and what you can to learn either the easy, like the easy way or the hard way is you make your money on the subdivision when you actually buy it. Now the story with project is identified the site, I think in janUary 2017, I didn’t buy it until December, 2017. The product came onto the market, 180,000 or $150,000 more expensive than I ended up buying it for. I watched the price come down over the course of the year because it was completely overpriced. I got a call from the agent on the 24th of December saying the person is now very, very motivated to sell the product. They’re open to completely discounting it. So with a subdivision, you make your money on the buying and you’ve got to factor in all of that time and all of those costs associated with getting your money back.

Plus, you know, getting stuck with the land and not being able to sell it, potentially looking to sell. um, so I think it’s very, very important from the subdivisions that I’ve talked about, like from talking to 6,000 odd people over the last five years in these businesses has been a lot of people come unstuck with their subdivisions because they’re too conservative with their costs. They don’t really understand the costs with the project. And they’re over over ambitious with their ultimate sales price. And I’ve, I’ve talked to people before that during the due diligence period where they’ve told me the numbers on this stuff and unlike you are making a massive mistake, that number’s not realistic for that area because they’re always looking at the highest sales price. Not the lowest, but yeah, just be really, really careful with buying a subdivision site. Do all of your due diligence up front, make sure worst case scenario you’re going to be okay and make sure you’re not building a house of cards with one and that good kind of bring everything else crashing down. if you haven’t done your numbers properly and you get stuck having to hold it, or worst case scenario, you can’t complete the subdivision because the bank’s not going to give you that 70,000 bucks that you need to actually go through it. That is physical cash out of your own pocket. Yeah.

And so this is obviously a more complex strategy. It’s more advanced for investors to do. So that means there’s more risk involves more things can go wrong. So as ben was saying, always do your due diligence beforehand. We kind of see this as going into kind of the second stage of property investing, which we call the acceleration phase, and so It’s a more high risk strategy that requires some skill to implement and obviously communication with your advisors, but if you want to check out those three stages of property investing, then we did do a video on that. So go to [inaudible] dot com forward slash 5:43. To see those three stages of building a foundation that’s going to give you financial freedom acceleration, which is where subdivision and flipping and selling it could likely fit and then freedom as well. So check out that video. Don’t forget to subscribe to the channel and until next time, stay positive.

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