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Subdivision Case Study: $850,000 Profit From A Single Deal

Subdivision Case Study: $850,000 Profit From A Single Deal

Categories: Strategies

He waited 12 years to make this subdivision deal happen.

It’s not that the deal took 12 years to negotiate or finance – the property was simply not on the market when he first spotted it.

Still – as soon as he spotted it – he knew… He knew he found THE DEAL.

With only $170k of his own money invested, he was able to generate a $850k profit. More on this in just a second.

Today I bring you the story of Nhan Nguyen who turned 1 vacant lot into 13… and sold for a total of $3.4 million. Here’s how it all went:

Nhan, How did you find the Subdivision deal?

I’ve actually been working on this deal for 12 years. The home belonged to my cousin and it took me twelve years to convince him to sell it. He knew he wanted to sell it one day but I had to wait until the time was right for him.

The important thing to remember here is to have patience when it comes to negotiating deals. Based on the profit I received from the deal, a 12-year wait didn’t at all render the deal unprofitable.

On the contrary, I grossed an average of $75,000 a year profit, and for eleven of the twelve years I did very little work on the deal.

How did you secure the deal?

I started out by offering the seller 1 million dollars for the property. He wasn’t thrilled about that price so we negotiated from there.

As a property investor, it’s important for you to work at making the offer attractive to the seller yet still worth your time and money from a profit standpoint.

Why is getting early access to the property when doing Subdivision so important?

I always work to make early access part of the settlement agreement when it comes to subdivision. This allows me to prepare the site for council approval. In this case I removed the tennis court and the trees on the lot in order to make the lot proposal more attractive to the council.

Subdivision location (before)
Trees…. now you see them…
Subdivision location (without trees)
Now you dont!

As a side note, it’s important to always check for VPOs (Vegetation Protection Orders) on the land before removing any trees or shrubs.

Free Giveaway: How To Attract Great Deals In Any Market And With No Money Down

We’re giving away 5 tickets to Nhan’s upcoming half-day workshop, where Nhan will be teaching:

– How to find great deals in any market
– How to buy property with no money down and have money left over!
– How to find motivated sellers who want to sell you their property at a discount
– How to find free blocks of land and lock in $100k profit in 6-12 months

Interested? All you have to do is leave a comment below sharing your biggest takeaway from this post.

The first five people to leave a comment here win a ticket to Nhan’s half-day workshop!

How can securing a long settlement save me money?

Along with early access, it’s important to negotiate a long settlement date on a subdivision project, as holding costs on a site can dramatically reduce your profit. In this case I asked for a 10-month settlement.

Anytime you’re paying interest to borrow money as opposed to paying cash, you should work to negotiate a long settlement. This will minimise the amount of interest you pay on any bank loans.

How did you know how many subdivided lots you could get on the property?

By communicating with the local council, I knew the minimum lot size for the area, and knew roughly what easements were required to ensure sufficient access to each proposed lot. I used this information to draw up potential development plans before making the offer on the property.

Lot allocation graphic
Sometimes you need to get creative with your lot boundaries. A continual balance between maximizing the site and giving the market what it wants.

It’s important when considering a subdivision deal to do your due diligence before you make an offer. Know the minimum lot size required by the council. Have an idea of what types of easements and driveways will need to be added to the lot.

How did you pay for the deal?

I raised most of the funds from private investors and via a bank loan. My private investors contributed 700k toward the deal and I negotiated a $1.8 million loan from the bank. I also put 170k of my own money into the deal.

Once the investor funds came through, I was able to pull my personal money out of the deal, freeing it up for other potential investment purposes.

Part of the reason I was able to get investors to take part in the deal was that I showed them that I believed in the potential profitability of the deal. By investing my own money into the deal and by showing them on paper what the profit could be, I gave potential investors confidence in their investment.

What challenges did you face along the way?

I faced several challenges along the way, which is often the case with any development. The first challenge was negotiating with the seller. Dealing with the vendor directly is almost always more profitable as you avoid real estate agent fees. However, it’s important to be prepared for potential challenges from the seller and the influence of those around them.

I also faced challenges in dealing with the neighbors. One neighbor wasn’t thrilled about the idea of the subdivision. We also had two major rain events which resulted in mud into a neighbor’s pool. I spent a good share of money soothing neighbors’ objections and cleaning up the mud from the rain events.

There were also challenges in dealing with council. There was an $11,000 fine for the mud incidents, and other miscellaneous fines and modifications that the council insisted on along the way.

There were challenges with contractors. One contractor was understaffed, and couldn’t get the job done because he’d underestimated the staff needed to finish the job.

Another contractor changed his estimate, insisting that I couldn’t get the job done at the price he originally quoted. If that happens to you, don’t be afraid to get other quotes. Find another company if you feel you’re being treated unfairly or unethically.

An additional challenge came courtesy of the demolition crew we hired. Their price was low; 16k as opposed to the 40k estimates I received from other demolition companies. They were cheap, but their work was rough. In fact, there were occupational safety violations that needed to be dealt with because of the roughness of their work.

The key is to get estimates from several companies for the work you need done, and to be aware of both overinflated and underinflated estimates.

What are your keys to creating a successful subdivision deal?

Deal directly with the owner if you can and if there’s not already a real estate agent involved. It’s often more profitable than going through an agent.

Also, you want to ensure early access to the site before settlement date. This will allow you to prepare the site for council approval before you start paying holding costs.

Do your due diligence before you get too far into the project. Understand that due diligence research requires risk. Sometimes you have to throw 10, 20, 30 or 50k at a deal to see if it will work.

Because of this, it’s important to ask yourself “How much money am I willing to spend to test the deal?” Part of a successful due diligence plan is being willing to lose that money if the deal doesn’t work out.

If you want to be successful at property investing you have to take some risks. Be sure that those risks are calculated risks. Determine how much money you’re willing to part with, and don’t risk more than you’re willing to lose.

Anything else?

Educate yourself on the costs of preparing a subdivision. For instance, here are a few things that are important to know:

  • It’s cheaper to add an easement driveway than adding a street driveway.
  • Land subdivision requires space for rubbish bin pads and for visitor parking.
  • It’s going to cost some money to get estimates for those types of lot improvements.

You need to know the competition and supply better stock. In this case, the minimum lot size requirement for the area is 400 meters. However, we built bigger 600 meter lots in order to increase profit and to produce lots that were more attractive to potential buyers.

Also, know the local council rules inside and out. Bend – but don’t break – the rules.

What was your profit on the deal?

The purchase price total was $1.25 million. The costs to develop the lots were $1.3 million. We sold the lots for a total of roughly $3.4 million. The gross profit on the deal was approximately $850,000, and it took eight months from start to completion of the project.

As shown here, subdivision and development can provide lucrative profits in real estate investing. If you have any questions or want more information regarding this type of property investing, please let us know in the comments below.

Free Giveaway: How To Attract Great Deals In Any Market And With No Money Down

We’re giving away 5 tickets to Nhan’s upcoming half-day workshop, where Nhan will be teaching:

– How to find great deals in any market
– How to buy property with no money down and have money left over!
– How to find motivated sellers who want to sell you their property at a discount
– How to find free blocks of land and lock in $100k profit in 6-12 months

Interested? All you have to do is leave a comment below sharing your biggest takeaway from this post.

The first five people to leave a comment here win a ticket to Nhan’s half-day workshop!


This content is provided to you in accordance with our Terms and Conditions.

You should supplement this information with appropriate professional advice from town-planners, builders, lawyers, accountants, and any other persons relevant to the specific project you are engaged in. 

You can download our list of recommended professionals here, or click here to learn why you need such professionals on your team.

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Comments

  1. Will says

    February 23, 2016 at 10:31 am

    It pays to be patient when working on deals

    Reply
    • Matt Jones says

      February 24, 2016 at 10:22 am

      Thanks for the comment Will and yes you are right, patience (combined with persistence meeting opportunity) will always win out…. 12 years is pretty committed though I must admit! We’ll send you details on how to get along to Nhan’s workshop – congratulations!

      Reply
  2. tracy says

    February 23, 2016 at 10:39 am

    Awesome. $800k+ profit with only calculated risk, worth the 12 years of patience

    Reply
    • Matt Jones says

      February 24, 2016 at 10:23 am

      Yes Nhan is the real deal Tracy and thanks for the comments. Something to aspire to! Ill send you an email on how to get access to Nhan’s workshop so you can hear more about his achievements 🙂

      Reply
  3. Ken says

    February 23, 2016 at 12:20 pm

    Great Deal & Very good info.
    Lessons learnt, patience persistence & facing & resolving challenges is key to success.
    Thanks Matt &. Thanks Naghan for sharing this deal !

    Reply
    • Matt Jones says

      February 24, 2016 at 10:24 am

      Thanks for the feedback Ken. Im as inspired as you! Great to see you enjoying the content and I’ll be in touch with details on how to see more of Nhan 🙂

      Reply
  4. Catherine Duchock says

    February 24, 2016 at 10:59 am

    Interesting! It is written that he produced $850k profit from $170k of his own money, I’m curious if the $850k was then divided amongst the other investors and how much of the profit he recognised himself….?

    Reply
    • Matt Jones says

      February 24, 2016 at 3:44 pm

      Hi Catherine, thanks for the comments.

      I had some more detailed chats with Nhan about the project and I know that initially he put his money in and once investors put their funds in, his capital was repaid which made the project a ‘no money down’ deal at the time of purchase settlement.

      Yes he had to distribute some interest repayments to the investors but I know that Nhan has very much ended up with the lions share of the profit.
      I’ll be in touch to send you details on Nhan’s workshop and you can quiz him in person if you like Catherine 🙂

      Reply
    • Matt Jones says

      February 24, 2016 at 3:44 pm

      Hi Catherine, thanks for the comments.

      I had some more detailed chats with Nhan about the project and I know that initially he put his money in and once investors put their funds in, his capital was repaid which made the project a ‘no money down’ deal at the time of purchase settlement.

      Yes he had to distribute some interest repayments to the investors but I know that Nhan has very much ended up with the lions share of the profit.
      I’ll be in touch to send you details on Nhan’s workshop and you can quiz him in person if you like Catherine 🙂

      Reply
  5. Sarah says

    February 24, 2016 at 12:11 pm

    Hi Matt,

    I’ve recently moved to Australia so sub-divisions are new to me. There is so much I have to learn and this case study has answered a few basic but important questions such as who to approach re: minimum lot size for the area, and to do my research on driveways etc..

    I guess I am wondering how to gauge a demand for let’s say 13 lots in this particular area. Just by looking at the pictures, there doesn’t seem to be an indicator of similar subdivisions/developments. I guess once I start to know the market and the area better, this question will be answered. I am also intrigued that removal of the trees makes the land /property more attractive to the Council and I wonder what this is about? As I said, lots to learn 🙂

    Reply
    • Matt Jones says

      February 24, 2016 at 3:41 pm

      Thanks for the comments Sarah and yes plenty to learn about subdivisions but not rocket science though. In fact if you are really interested (and here comes my shameless plug :)), check out my DIY Subdivision Kit which is pretty much the go to whoa of subdivision in a nutshell and will answer all your questions: https://www.propertyresourceshop.com/sp/subdivision-kit/

      To answer your question though about demand, yes there was a demand for lots however Nhan used a number of strategies to ensure all the lots were sold fast (some before he even finished the subdivision). There was also some precedent in the area of other sites being subdivided in the same fashion which always helps with council approval.

      You raise a good point though because it’s so important to know the end sale value of your lots and who is going to buy them. Starting with the end in mind is critical so you can work backwards from there to ensure there is potential profit.

      Regarding the trees, Nhan was able to gain permission from the owner to remove the trees during the settlement period so there was no need to get council approval (of course the site had no vegetation overlay so the trees were able to be removed). Having no trees when applying for the subdivision also meant less obstructions when presenting the proposed new lots.

      Hope that helps Sarah and I’ll be in contact to organise tickets to Nhan’s workshop where you can ask him all about the project in person 🙂

      Reply
  6. Pamela Johns says

    February 26, 2016 at 5:25 pm

    Awesome result Nhan. Congratulations!

    Reply
    • Matt Jones says

      March 14, 2016 at 5:18 am

      My thoughts exactly Pamela 🙂

      Reply
  7. Vincent Yu says

    July 25, 2018 at 9:02 pm

    I believe this is a perfect sample for people who has done everything right in subdivision business. Really interesting to read this article.

    Reply
  8. Adam says

    April 19, 2019 at 4:19 pm

    Very inspirational Nhan

    Reply
    • Matt Jones says

      April 26, 2019 at 3:55 pm

      Yep he’s smashing it Adam… make sure you go along to the bus trip to see Nhan’s latest project along with a bunch of other developers that are nailing it: http://bit.ly/BrisBusTrip

      Reply
  9. Guy says

    April 27, 2019 at 3:20 pm

    Hi,
    Well it sounds like Nahn has access to investors who don’t mind risking their money for fairly small returns if , as you say he’s ended up with the lions share of the profits!
    I feel that finding such investors and convincing them to invest may actually be the key here to having made the profits he is claiming, that and maybe having relatives prepared to sell for a bargain price.
    But without details of the split of overall profit between the investors and Nahn I’m not sure we can really congratulate him on a great deal can we?

    Reply

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