Today’s success story features a young man who together with his Dad did a 1 into 4 lot subdivision which involved a minor renovation of an existing house and creating 3 additional lots.
Kevin: Our success story this week deals with Brendan Brown. Brendan works as an area manager in Brisbane North, from the city out to Caloundra. Together with his dad, he did a one-into-four lot subdivision that involved a minor renovation of an existing house and creating three additional lots. Let’s find out a little bit more about it.
Brendan joins us. Hi, Brendan. Thanks for your time.
Brendan: Hi, Kevin. No problem at all.
Kevin: Tell me a little bit about the property. Where was it located, and why did you choose that area?
Brendan: This particular property that I found is located in Tingalpa, so it’s about 15 kilometers southeast of Brisbane CBD. I tend to look for properties within that range of the CBD, but one of the other main things was that it was surrounded by more premium suburbs. You have suburbs like Wakerley, Manly, Wynnum, Murarrie, Cannon Hill, and even Carindale and Belmont areas. They all circle around it.
Yes, I really liked that. It was at a lower average price than those areas yet was surrounded by those more premium suburbs, so I saw some good opportunities for growth there.
Kevin: How big was the block of land?
Brendan: It was 2023 square meters with a small two-bedroom [1:27 inaudible] right at the front. It was a nice, big block of land.
Kevin: Just the single block, or had it already been divided into lots?
Brendan: No, it was just one block, so on one title. We looked to get the approvals to split it into the four blocks and retain the house at the front.
Kevin: Was that something you knew you could do, or did it require a bit of investigation?
Brendan: It does require a bit of investigation. I think a lot of the information is available to anyone. You have planning and development online and interactive mapping and all that sort of stuff.
I have a pretty good interest in small residential development, so I spend a lot of time studying city plans and that. They can get a bit complicated, but if you can decipher, it can at least give you a good guide as to what you can do with the property. I had an idea that I could split it into the four, but I would talk to my town planner to confirm that.
Kevin: Let’s talk about money now. Let’s talk about the purchase price, and I also want to know how long it took you to actually set it up and then get to the final stages. Firstly, let’s talk money, the purchase price.
Brendan: I had it under contract for $640,000. The good thing about that is I managed to get a two-months due diligence period, and that is definitely a positive in residential development. That basically gave me two months to research everything as well, so I could be confident that I could do all that research that you’re talking about.
Kevin: Was that enough time?
Brendan: Yes, that was enough time to do the research and the finance and all that. It would be pretty hard to get two months these days, so you probably normally have to try to do it a bit shorter than that, but the more time you can get, the better for that sort of stuff.
Kevin: In those two months, did you go unconditional after that stage?
Brendan: Yes, I did. I did renegotiate a little bit, because I did discover in that due diligence, there was a bit more cost involved doing some roadwork and that sort of stuff, so I tried to renegotiate. The seller wasn’t keen to budge, but I managed to get just an extra $5000 off. It all adds up, so it’s worth renegotiating. The final price that we went unconditional on was $635,000.
Kevin: The end game here, of course, was to get three individual lots off plus the lot that has the house on it. Were you successful in doing that?
Brendan: Yes, we were. It was advertised as splitting it into three, so I think a lot of people were maybe just looking at it based on what the real estate agent was telling them –that you could keep the house in the front and get two lots in behind. But I managed to get the four lots out of it because it had a two-street frontage.
With knowing that your minimum lot size for a normal low residential is 400 with the ten meter frontage, and this total site had 20 meter frontage, I got two of those narrow lots at the end that didn’t have the house on it, and that is what got me the extra lot.
Kevin: Did you need to relocate the house at all?
Brendan: No. That was the other good thing. The house was positioned right at the front of the other end, so I was able to retain that, on just over 400 square meters and then create a battle ax 600 square meter with access from that end out behind that. I guess total of about 1000 square meters for those two, and then just over 800 for the other two.
We did lose a little bit in the land dedication to complete a cul de sac. That’s what I was talking about before with the road works. It was an extra cost and we lost a bit of land, but it worked out.
Kevin: With that subdivision, you then have to get the services on there. What was the end cost of the development, and what did you eventually end up selling it for?
Brendan: The end cost of the total project… The purchase price was $635,000. Like you said, the services, there is quite a bit involved in that. You need sewer, storm water, and water, and they’re running a fair way on a big site like that. We ended up finding one coming in that did all that. It was about $120,000 to basically do all our road works, all our sewer – basically all the civil works – which was good. But we had some extra costs in electrical. Our total ended up being a total cost of $955,000.
We actually ended up selling three of them, and we retained one of the blocks, but we did have a lot of demand on it. Quickly, the two bed house, we sold for $370,000, the 600 square meter rear lot for $285,000, one of the narrow lots for $280,00, and retained one of them. But if we did sell that for $280,000, our total sales would have been $1,225,000, which gave us a gross profit of $270,000. The total time was about 18 months. They take a bit of time, but it’s still worth it for that amount of money in that time.
Kevin: As I understand it, you’ve been able to hold on to one of the lots. Is that right?
Brendan: Yes. That’s what we did. That was my recommendation, and I think that has probably been a good thing with the way the market is going. We built just a low-set standard two-bed, two-bath property on that, and it’s probably only a week or two away from completion.
At the moment, it’s just valued at that land value, the $280,000 plus the build cost, which was around $220,000, so about $500,000. But on completion, we’ll get a re-val, and I’ll be expecting a valuation of about $550,000 to even $600,000 based on the sales recently in that area. There is an equity gain just in holding and building.
Kevin: Absolutely. Will you hold it then, or will you then sell it?
Brendan: Yes, I think the idea is to hold it and rent it out, because with interest rates the way they are, it’ll easily be positively geared, and we can still pull that profit out by refinancing on the equity. Even though some of our cash is tied up in it, we’re still releasing some of that profit and able to move it on to another project.
Kevin: Great story, Brendan. Thank you so much for sharing it with us, and all the best for the future too.
Brendan: No worries, Kevin. Thanks for having me.