The Subdivision Process Explained

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.

3 thoughts on “The Subdivision Process Explained

  • The Australian government will get their fingers in there again if and when you sell, because in the scenario you were speaking about, they don't deem it an "investment", they deem it a "business venture" and there becomes GST implications as well. Capital gains tax applies also.

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