Are splitter blocks still profitable investments?

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Splitter blocks were once all the rage with mum-and-dad investors who wanted to make a tidy profit without exerting too much effort. Five years after their peak, do they still deliver healthy returns?

Only if you perform due diligence and are ready to sign on the dotted line immediately, said many seasoned real estate agents.  

They’re still highly sought after by clients, said Tristan Rowland, a Brisbane-based Place Aspley agent. “The wait lists are huge,” he told the Domain Group. “If I get a listing, it sells within days or the day I list them. You have a look on the internet … they’re all under contract.”

Tristan cites a splitter block at 85 Fallon Street in Everton Park, Queensland, as an example. The 1,225 square-metre block was already listed on two titles but had the option to reconfigure to three titles. Needless to say, demand from developers and investors was intense when it was listed.

“I can’t give you an exact sale price as it’s not unconditional yet, but I can tell you it went for over $1 million,” Rowland said. “Considering a standard 405 square block sells for around $400,000 around here, the total re-sale price would be about $1.2 million for the three blocks.”

Though the profits might seem big, he said there’s often too many costs involved in developing the land to make it worthwhile for inexperienced investors.

The profits come from the redevelopment. “A lot of the guys we have buying these splitter blocks are full-time builders. They build the new contemporary homes themselves – that’s where they make all their money because the demand for brand new contemporary homes is insatiable,” he said.

According to Anthony Hunt, area manager at Coronis, making money by investing in splitter blocks is a lot harder than it used to be. “The gloss has worn off splitter blocks over the past five years because the costs associated with them are pretty huge,” he said. “It can cost $30,000 to $40,000 to remove the house. Add in all the associated development and services costs and it stacks up very quickly.”

The total cost of turning over the average splitter block depends on the individual circumstances of each block. For the standard 810 square-metre block that will be split into two, an investor would have to fork out about $70,000 to $75,000 for the process.

“The biggest component of that is the infrastructure charges ($28,000) and then you have the cost of surveyors, town planners and the actual physical cost of installing the services,” said Scott Entwistle, planning manager at Brisbane-based urban planning firm DTS. “In a best case scenario, this process takes three months but sometimes that can blow out to double or triple that time.”

Entwistle also warned mum and dad investors to perform due diligence before signing anything. Among other things, investors should ensure that the storm water drains into a lawful point of discharge.   

Rowland said the biggest challenge for investors wanting to snag a splitter block is competition from moneyed developers.

“You have to be so quick. Developers have got cash in their pocket and it can be impossible to compete with that,” he said. “There’s still a lot of money to be made … we’re talking $80,000 in a week – but you’ve got to be prepared to move quickly and have your research already done.”

 

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