With a bit of foresight, subdividing can be a great way to unlock capital.

Selling the backyard can be a good way to raise some extra cash. But it’s important you go into the process with your eyes open to make the most of your return.

Property industry sources say one of the first things to be aware of is that cashing in the backyard by subdividing your property will usually mean the now smaller property you’ve retained will no longer be worth what it once was.

While that shouldn’t be an issue for those looking to remain in the property long term, it may significantly devalue the property if owners are looking to sell in the short term.

Brad Pearce, a director of Miles Real Estate in Rosanna, says subdividing a property can be a good idea for retirees, enabling them to access some of the capital that is tied up in land while allowing them to remain in an area they know and removing the hard work of the backyard.

He says that while someone looking to sell their remaining property in the short term might find their return on both parcels of land would be roughly equivalent to what it would have been on the single property (meaning they’ll be out at least the costs of the subdivision and sale), ”in [the] long term, that property that you’ve subdivided and kept will gain value”.

Real estate agents generally recommended that the block to be subdivided be at least 600 square metres (although in inner areas blocks of as little as 500 square metres may suffice).

Retaining a small courtyard for the original property is also wise and allowing for a separate driveway into the new property (or an extra-wide driveway allowing access) is desirable.

Property experts say it can be a good idea to sell the subdivided land with plans and permits for any new house already in place rather than as a ”blank canvas” – both to help maximise the sale price and to give the home owner greater control over what is built upon their former backyard.

”If you are intending to remain in the front property, then you might want to retain some control over the design of the rear property so that it doesn’t impact you too much,” says David Hallett, Victorian manager of building advisory service Archicentre.

This will also save the buyer the time-consuming task of obtaining a planning permit and increase the attractiveness, saleability and possibly even the value of the part of your property being sold.

”The last thing you want to be doing as the purchaser is to be sitting on an empty block of land for 12 months while you negotiate your way through the planning permit process,” Mr Hallett says.

Niels Geraerts, sales manager at Barry Plant in Yarraville, agrees: ”It wouldn’t be advisable to go and sell your backyard off without plans.”

Being realistic about the area is also important. If you live in a location with multi-unit developments, allowing only for a single property in your subdivision may mean missing out on a higher return.

Barbara Snell, principal of Harcourts in Clayton in the city’s south-east, says people would do themselves ”a very big injustice” if they subdivided a property with the intention of building only a single new home in an area – near Monash University, for example, where multi-unit developments are permitted.

”I’m sure that people who did that years ago – just cut their block in half and built in the backyard – would be kicking themselves today because the rules have changed,” she says.

”Once upon a time, they had a single house and they were able to knock their house down and build in their backyard. Then they were able to do three and now you get up to eight flats on a single block depending on where it is.”

Posted by David Adams – Domain (The Age) on 15th October, 2011