Subdividing your family home can deliver a great financial boost, but is it necessarily the best option to grow your wealth?

Here are the pros and cons that need to be considered when carving up the family block.

Subdivision of the family home has become more prevalent over the past decade as the populations of our capital cities grow and as council’s adopt higher-density zonings that allow owners to carve up their land – whether it be a simple retain and build or something a little larger.

But what are the benefits and drawbacks of subdividing your family home, and is it the best option to grow your wealth?

Here are some pros and cons that need to be assessed.

Cons

–       It could inhibit the sale price of your existing dwelling (i.e. your home).

If you have a large home that is 3 or 4 bedrooms and accommodates a large family, subdividing off the backyard may reduce the number of prospective buyers if you ever want to sell the existing dwelling. For example, bigger families with several children who want a large house will also likely want a big backyard. But if the backyard has been subdivided off, then the property won’t be as appealing to these buyers, which could impact any sale price in the future.

–       It may be better to utilise the equity in your home rather than subdivide.

If you’re considering subdividing your family home to realise the value and grow your wealth, a better alternative might be to use the equity in your home to buy an investment property. This would allow you to keep your family home as is, while using the unrealised value to invest in another property and realise the capital gains from both assets.

–       You’re not guaranteed a profit.

It’s important to complete adequate research regarding the associated costs and expected end value of the subdivided land and your home. By completing a basic feasibility study, you should be able to determine if the subdivision will be profitable or not.

–       The ATO could become your business partner

It’s also critical to understand the tax implications involved with subdividing your family home. You may no longer be entitled to the principal place of residence exemption on the back block. You may find that you create a large capital gains or income tax bill.

Pros

–       A good way to activate under-utilised land.

As the populations in our capital cities grow, residential development infill will be needed to accommodate future residents. Urban sprawl is not economically or environmentally sustainable as it places a large strain on public infrastructure, such as road and rail, as well as hospitals and schools. The environment also suffers as more land needs to be cleared for housing on the urban fringe and people make longer commutes in their cars.

–       Allows empty nesters to downsize without moving.

If your children have grown up and moved out, you may not need, or want, a big backyard – particularly if it’s high maintenance. At the same time you might be reluctant to downsize if it means moving house. By subdividing your family home, you’ll be able to stay in your house and won’t have the responsibility of maintaining a big backyard.

–       It can provide a financial boost.

If you subdivide and sell the land you can use the profits to grow your property portfolio by buying an investment property or to use for personal reasons, such as a holiday. Alternatively, if you subdivide and build on the land, you can hold the property and take advantage of future capital growth and rental returns.

When it comes to subdividing the family home, everyone’s situation will be different, so it’s important to weigh up the pros and cons and determine what’s right for you.

Have you thought about subdividing your home? Share with us in the comments.

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