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Author: Kate Robertson

Publication: Sunday Age (24,Sun 03 Apr 2011)

LAND SMART - DOMAIN PROPERTY REVIEW AUTUMN 2011

Increasing numbers of home owners hope to profit by building in their backyards, but it's important to do your research first, says Kate Robertson.

SUBURBAN backyards are being transformed in a growing trend for subdividing house blocks into smaller parcels. According to Ross Voci, director of specialist consultancy Property Subdivision, home-owner interest in the process has increased ''markedly'' in the past four years. ''There are a lot of people jumping on board,'' Mr Voci says. ''I suppose the economic times and pressures ... have caused people to look at their backyards.''

Big house blocks have long tempted backyard developers, but in the past most interested home owners simply sought to attract buyers for their excess land by securing the plans and permits required for a unit development. Mr Voci says many now want to take the next step and oversee the construction too. They can then hold the property as a rental or put it on the market.

Either way, Mr Voci says home owners need to do their sums before deciding to build or just get the permits and sell to a developer. ''Sometimes it's more profitable to sell the backyard without building and not go through the six to nine months of headaches with the building and the subdivision and all that type of stuff,'' he says.

Home owners can make a 30 to 35 per cent gross profit on a backyard development, Mr Voci says, because they have the benefit of already owning the land rather than having to fund holding costs. Subdividing should only devalue the existing home by about 15 per cent, he says, and some projects will have almost no negative impact.

Mr Voci also warns that there are many possible pitfalls, and that only about 20 per cent of properties have subdivision potential. Would-be developers need good management skills to successfully deal with the many professionals involved in the process. ''The key is to design the right product for the right area with the right budget,'' he says.

Buyer's advocate Hugh Jones is less convinced that subdividing or developing is a good idea for non-professionals. ''They need to see if the money is in the deal,'' he says. ''Often people who haven't had experience with business or with development can't see how things stack up ... If they haven't got a business mind, or they haven't dealt with building before, they'll find it very, very hard.''

Mr Jones says he is concerned by the ''dramatic'' increase in the number of ''mums and dads'' becoming involved in subdividing and developing in recent years, many of whom are older home owners with small mortgages or others who fancy themselves as young developers. ''I've talked people out of doing it, people who haven't got the experience, or I've done the sums for them and told them the project is not viable.''

Even professional developers can get it wrong and lose money. ''They need to look at what's selling in the area,'' Mr Jones says, adding that a good developer has the skills to bring all the elements together so the finished product is worth more than the sum of its parts. ''The market is very discerning ... it doesn't tolerate poor building or poor architecture or poor home design.''

Mr Jones also warns home owners against dodgy operators who offer to buy backyards at a discount in a joint-venture set-up. He advises anyone considering a joint-venture arrangement to seek independent legal advice on the contract.

RESEARCH, BUILD, REPEAT

Emboldened by his success in subdividing his Craigieburn property, businessman Alex Tsandefskis, 28, (pictured above) is trying to repeat the process in Broadmeadows. He says he was convinced it would be worth his while to subdivide his three-bedroom house after researching land sales in the area. ''There were subdivided blocks in the area that were selling for not much less than what the whole thing was worth.''

After hiring a company that guarantees the successful acquisition of plans and permits for subdivision, it took about eight months and cost about $50,000, including the unit designs, permits and subdivision expenses. He says his net profit from the deal was about $100,000.

Pleased with the outcome, Mr Tsandefskis bought a house in Broadmeadows that he is renting out while awaiting approval to subdivide. He has plans approved to allow two townhouses at the rear of the property.

Mr Tsandefskis says it is important to be familiar with the area in which you're buying. ''Do your research on what the property is worth at the moment and what it will be worth subdivided, with comparable sales in the area.''