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Subdividing vs Renovating – Which Is More Profitable?

homesMark Armstrong busts a real estate myth while reporting for Property Observer. In his article, he discusses how Subdividing may not be the most profitable way to go. Property owners hold two opposite ideas equally dear when they are looking to sell their properties. One such idea is Home Staging wherein they revamp their existing homes, upscale it a little, give a few finishing touches and seek better prices for their appraised properties.

Property owners sometimes take a diametrically opposite route and demolish their properties to create two separate units on the site. If you stick to traditional notions, you may feel that two units can be sold for a higher price than one- right? So is there a catch? Well! Plenty to be precise!

To begin, there is a cost involved in demolishing the existing home and leveling the site. There is a price tag attached to council permits. Add to this the fee of the architect or the draftsman who prepares the blueprint for the new units. You cannot overlook the cost of labor and raw materials (it may include an exigency or a sudden surcharge). One has to duly consider the amount of interest on loan (required for reconstruction) and rental fee (for the time you do not have a place to live in).

Next in line is the cost involved in marketing your property, appraisal fee, agent’s cut and the capital gains tax. If you now look at it, subdividing might not seem to be a viable option anymore. Well! It still can be but it is your duty to make an informed decision.

Which one between the two would you typically choose? I invite your opinion.