You might recall that I mentioned in my previous blog that there are generally two types of property investors:
- Passive Property Investor
- Active Property Investor
If you are a passive property investor like 80% of the investors, then you will probably follow the more conservative approach of buying and holding properties and waiting for the value of your properties to increase over time.
The buy and hold approach is a proven way of creating wealth long term and there is nothing wrong with it, however if you are in the 20% of the property investment population, you might want to take the matter into your own hands and manufacture the growth yourself.
Small residential property development is one way of expediting the wealth creation process and by small, I mean building four or less dwellings on one title because anything above four is treated as commercial development, which is an entirely different topic.
Common questions I get from clients who are new to the small residential property development world are: “Is this block of land good value? Is it worth proceeding or we are just waiting our time? “
Like any projects, it is necessary to break down the development process before we look at the specific options
There are seven stages at a high level:
- Due Diligence
- Feasibility Analysis
- Planning and Building Application
- Detail design
Let us look at the due diligence phase first.
Before we start discussing the asking price for a particular property/block that we we plan to develop down the track, we need to find out exactly what could be done on this block of land. Is it really a ‘gold mine’ or just a ‘lemon’ ?
First question you need to ask is “What are the state and local planning policies & overlays that apply to the site?”
Each local council has its own planning policy and you are only allowed to develop the site as per the policy.
I would always start with the Victoria Planning Map website to check the zoning and overlay for the particular land I am interested in.
For example, recently one of my clients was looking at a block of land in Knox city and it has the following zoning and overlays:
- Design and Development Overlay – Schedule 2
- Significant Landscap Overlay – Schedule 3
- Neighbourhood Residential Zone (NRZ1) – Schedule 1
What do they mean?
First, let us check the council website for the specific polices around the zoning.
Section 4.0 in the zoning document mandates that ONLY ONE dwelling could be built on the lot within the NRZ1 zone.
In other words, regardless of the size of the block, you can only build ONE property on the title.
All of sudden, this site looks way less attractive despite of its huge size.
As always, I would contact the city council planning department to confirm whether I could build multiple units on this block and sub-divide it. Sometimes the agent do not even know what planning guidelines apply to the particular block he/she is selling, after all, it’s not their job.
As you would have probably realized by now, there is no point even talking about the price and cost until the legal aspect is confirmed.
Above is just a small part of the due diligence required before we even talk about the price. In addition to assisting my clients with the financing, I also guide them through every step of the buying and/or developing process.