In today’s show we talk to Graham Jarry who describes himself as a small full time developer. Graham has built a business out of splitting blocks and he tells us how and what to watch out for.
Kevin: Hot on the heels of my chat earlier in the show with Jo Chivers about splitter blocks, we’re going to share a success story with you now. I’m talking to Graham Jarry, who describes himself as a small, full-time developer.
Graham, thanks for your time, and thanks for sharing your story with us this morning.
Graham: My pleasure, Kevin.
Kevin: Now, we’re going to talk specifically about splitter blocks. Tell me your story. I believe you bought a block, split it, and then sold half off. Was it that simple?
Graham: I sold both off, actually. It is pretty straightforward once you’ve done a couple. I was in and out from settlement-to-settlement in two and a half months.
Kevin: Is that the secret as far as you’re concerned – that you’ve done a few, you know what to expect?
Graham: I did educate myself, but once you’ve done a couple, yes, your costs are pretty well the same each time unless there’s some curve ball thrown up with choosing the wrong spot or something like that.
Kevin: We might talk about a few of those as we continue to talk, but I want to take you back to the first one you ever did. Do you remember what that was, and where was it?
Graham: Yes, it was out in Wynnum West.
Kevin: Wynnum West. That’s in Brisbane, of course.
Graham: In Brisbane, yes.
Kevin: Tell me about that one. Was it a difficult one, or did you go in with your eyes pretty well wide open?
Graham: I went in with my eyes pretty well open. I’d had some education on how to do it originally.
Kevin: What sort of education did you put yourself through?
Graham: I went through a mentoring with a developer who was active in the market.
Kevin: Tell me about the pros and cons of actually splitting a block from your perspective, Graham. You’re obviously able to do this now full-time.
Graham: Yes, that’s correct.
Kevin: Obviously, the pros for you are that it’s giving you the lifestyle that you want and the income that you want, but are there any downsides to it?
Graham: Look. If you pay too much, obviously, you’re not going to be able to make profit out of it. I don’t see many downsides. They’re quick to do. There’s a lot of big blocks around, people wanting to downsize, and that sort of thing. People don’t want large yards these days, and so predominantly, they’re 10 x 40 when you split them. 10 meters wide, 40 meters depth.
Kevin: Tell me about some of the pitfalls that you’ve come across that you think maybe we can learn from, Graham.
Graham: One thing was I had to put a stormwater in one out in Wynnum I did. The stormwater was for the rear blocks. The council wanted me to do that in case they subdivided the back two blocks at any point. The reason for that is with the narrow blocks, it would have been difficult to put stormwater through those blocks with the narrow blocks with the houses over once they were installed, I suppose. That was one that I wasn’t expecting. That cost me an extra $10,000 nearly for that one.
Kevin: What are some of the other additional costs that are associated with splitting a block?
Graham: If they’re already on two lots, which is what I call a splitter block, you’ve just got your costs. Because it’s a business, you pay your stamp duty, legals, and we have to pay GST on the other end because it’s a business. If someone was just doing a one off every now and then, they probably wouldn’t have to pay GST. But as it’s a business, we have to pay GST.
The other costs are normally sewer and water. Sometimes if you’re doing DA for it, the councils may say they want street trees, they may say they want footpaths, things that you just don’t know sometimes. You need to have a contingency in it of a certain percentage to allow for those things when you’re doing your research.
Kevin: How much contingency do you put in normally, percentage-wise?
Graham: For a property around $500,000, I put in a contingency of about $10,000.
Kevin: Let me take you in another direction. You mentioned splitters being basically a block that’s in two lots already. Would you ever look at getting a block that’s not split in two? In other words, you have to go through the subdivision process, or is that too lengthy?
Graham: No. I still do that, as well, because the double lots people look on the Internet and see, “Oh, the 405 now is worth $300,000; we want $600,000.” They’re wanting in price a lot of the time, so it won’t work. So, yes, I definitely do do subdivisions, one into twos, one into threes, one into fours.
Kevin: Good lesson there that if you’ve got a block that is possibly able to be subdivided, it doesn’t necessarily follow that you have two lots of land that are worth what two vacant blocks are worth, because by the time you go through the subdivision, then getting all the services on, there are substantial costs involved there, Graham, isn’t there?
Graham: Yes, there is, and knowing where to go to get that done and to be able to get it done quick, because obviously, holding cost is another pitfall of people getting held up. If they’re not sure what they’re doing, the cost of interest on money and stuff like that can eat into it. The other pitfall really is being able to sell it quick.
Kevin: Well, I suppose good people like you always make things look quite simple. But the message there is always do your homework and make sure you understand what you’re getting into.
Graham, thank you for sharing your experience with us today.
Graham: It’s been my pleasure, Kevin.