How Town Planning can add value
By Justin Eslick
Buyer’s Agent and qualified Town Planner
Add Value Town Planning Style!
It seems these days that everyone wants to be a renovator. I guess who can blame them, just look at what the Reno Kings have achieved! Unfortunately there are a number of people who limit themselves by sticking to this niche when there are many other ways to add-value to property. Even the Reno Kings don’t stick to only renovating!
This article gives a brief run down on some of the advantages of using town planning to add value to your property.
There are so many value-add opportunities that come under the banner of ‘town planning’ and a number of these are the result of you knowing more than the vendor or sales agent of a property. Buying for zoning upgrades, knowing and understanding some of the development ‘bonuses’, subdivision and developing units and townhouses are just a few of the methods that everyday investors are using to fast track their investment portfolios. Let’s look at these a little more closely.
“... but land does get zoning and density uplifts and someone has to be the winner in all of this. So why not make yourself the winner!?”
Our cities are getting more populated and at the same time households are getting smaller. The result? The need for more housing and infrastructure, such as transport, to accommodate these people. Imagine for a second you own a 1000sqm inner-city property with a single house and no further development potential and you get a knock on your door. “Hello”, the gentleman at the door says, “I’m Joe from your local council and we have decided your property could have 20 units built on it”. Wow! An enormous increase in the value of your land and you did nothing! Believe it or not, this does happen. Okay, maybe not quite like that – there is a background process to all of this, but land does get zoning and density uplifts and someone is the winner in all of this. So why not make yourself the winner!?
Follow the infrastructure
Always, when looking at properties for my clients I am looking at it from the short term to long term, so making sure it works today, but has greater potential later. One method is to keep track of the infrastructure proposals (i.e. new busways, train lines, etc.) and another is to follow the paper trail that council has prior to a property or area actually getting an uplift. Make sure you research these items, sign up for the free newsletters, attend public meetings and read the papers – it is very difficult to be the very first person to find out about a major change, but it isn’t hard to hear about it before the general populous.
Cafes = capital growth
You don’t even have to be one of the property owners that receive a zoning uplift to benefit. Always, when looking to buy for the above situation, ensure the investment works here and now in today’s market. This way if you don’t receive the uplift, you are at least going to be located near property that is likely to change. Increased density and land uses benefits all of those within the general area as you will have new cafes, new shops and increased transport options.
Look at it this way: If you were looking for a jump in growth, would you like to own a property within a cafe precinct or would you like to own a property that will have access to a brand new cafe precinct in the near future, that has not yet been accounted for in the market prices?
“One bit of advice though, if the agent is under-quoting what you can do, don’t be the one to tell them, but if they are overstating what can be achieved make sure you put them in their place –it might bring the price right down!”
Development bonuses are one of the main areas where you can gain an advantage over vendors, other buyers and the selling agent. Development bonuses are the little differences or advantages that can occur, often with regards to building height, density, uses, setbacks or relaxations of some of the requirements - like the number of car parking spaces.
Planning Schemes are very complex documents and are becoming more and more complicated as they try to ensure everything that is developed is suitable for the area. It is very difficult to understand even just the basics of a Planning Scheme, let alone the 'nitty-gritty' details. There is plenty of evidence to support this, with many real estate agents in Brisbane, for example, still using the terminology ‘Residential A’, ‘Res B’ and ‘RB3’. These zones have not existed in Brisbane for 16 years!
Another example is the minimum lot size requirements in Brisbane, where agents are often misquoting the allowances because they do not understand the changes that occurred when a new planning scheme came out. By understanding and educating yourself on these matters you gain an advantage over the competition and the agent.
One bit of advice though, if the agent is under-quoting what you can do, don’t be the one to tell them, but if they are overstating what can be achieved make sure you put them in their place –it might bring the price right down!
Subdivision and multi-unit development (i.e. units and townhouses) are somewhat of a step-up in the whole adding-value through town planning theme, but so too are the potential profits.
Developers have options!
The idea with both subdivision and multi-unit development is to increase the development yield to increase the rent, increase the equity and/or increase the profit. Sadly, people often forget that they have options within these as well. With subdivision you can gain the approval and in doing so gain equity or sell for profit (yes, even this bit of paper has value!), keep existing dwellings, remove existing dwellings, sell vacant land or build new dwellings. If the feasibility doesn’t work for your preferred option, explore the next option!
Build to Rent or build to sell?
Similarly with multi-unit dwellings too many people do their numbers on the basis of building standard units or townhouses and selling them. Why not look at holding them, or holding some of them? And if you are holding then also look at what is no longer required... Do you need the units to be as large? Do you need the pool? Would the landscaping need to be as extravagant? Would you strata-title or hold them on one title to reduce the cost of rates and land tax? There are so many more considerations and options here. Again, if your first preference doesn’t stack up, look at the next option.
As an example of the above: Geoff Doidge of the Reno Kings is now developing a site that showed a poor profit if constructing townhouses and selling, yet it shows a very good rental return and depreciation (tax write-off) allowance if he redesigns the development, increasing the unit numbers by making the units smaller and thereby increasing the rental yield.
Here's how it works
You buy a site, get approval for 4 townhouses, construct and decide to sell.
|Purchase and approvals
|End value @ $500k ea
||$2 mill or 11% gain
|Rent @ $450 pw ea
||$1800pw or 5.2%
Or on the same site you build 10 small one bedroom units to rent.
|Purchase and approvals
|End value @ $330k ea
||$3.3 mill or 27%
|Rent @ $350 pw ea
||$3500pw or 7%
With this option, not only do you have a better rental yield, but you also have better depreciation and a higher end value as the value is based on the rents more so than market price.
Another example: These days, Paul Eslick of the Reno Kings looks for property that not only has the potential for add-value through renovation, but also the potential for redevelopment. His number one strategy is to buy properties with an existing house on land that can be developed while still keeping the dwelling, buy it at a price that is attractive regardless of whether he can develop, and make sure they are located in growth areas. This enables him to add-value by renovating to increase the rent and equity, hold the property for capital growth and also get that added-value through gaining a development approval and then if that isn’t enough he does the development. It’s a quadruple twister!
As with the zoning uplift strategy, this strategy has a fallback position if you discover you can’t develop, or your circumstances prevents you from developing immediately.
“Too many people get their development education from unreliable sources, such as real estate agents and builders.”
The value of understanding and embracing the benefits of town planning is huge. Every property investor should, at the very least, have a basic understanding of what can be done where within their investment area and keep track of proposed changes, upgrades and infrastructure. You should gain this knowledge by carrying out your own research or speaking to the correctly qualified people. Too many people get their development education from unreliable sources, such as real estate agents and builders. If you aren’t doing your own research, then you will ALWAYS be at a disadvantage when buying property.
What is Investigate Property?
Investigate Property is a buyer’s agency sourcing quality investment property in Brisbane. Clients not only benefit from Justin’s experience in sourcing these properties, but also from his experience as a qualified town planner and as an active investor and developer. Justin is also a regular presenter on sourcing property and town planning at the Reno King’s 'Property to the Max' workshop.
To find out the valuable benefits that an Investigate Property client receives click here.