What to do when they plan to build a double-storey next to your investment property?

Don’t panic.

Not all is lost. What ever you do, don’t panic. Like all due diligence it should be taken in your stride. In many instances when doing our due diligence we come across something that at first sight for most buyers would make them run a mile.

I recently did some due diligence on a building in Bronte. Everything about the building and the apartment was perfect for a long-term investment. Everything except that one of the neighbouring properties had lodged a Development Application with council. Not only were they proposing to split the large block of land to build two dwellings, they were also going to double the height from a single to a double story building.

The first thing that came to mind for the unit holder was that they had to sell the investment unit immediately. My initial reaction was how much would it would actually cost to sell and buy again. The unit’s value is approximately $900,000.

Agent’s fees $18,000
Stamp Duty to bu$36,000

Total $59,000

Add to this any indirect costs such as Capital Gains Tax if applicable.

Simply put you will lose at lease 6.6% of the value of the property directly and possibly more indirectly though market conditions. The first thing you need to do is speak to an independent valuer. What you want is a before and after valuation.

In most cases you will be able to get a reasonably complete set of drawings from the council website without getting off your chair. This will give both you and the valuer a clear picture of exactly what physical effect the new building will have.

In summary, there were no main factors that would have affected the overall valuation of the property. There were no main (water) views that would be blocked out. The very small views of the sea from the balcony were still intact and so small that it did not improve the value of the property. Rental estimates were done at the same time and showed that there would be almost no negative effect to the rental the unit owner would be able to get. Any possible change in rental yield could also come naturally from a positive or negative shift in market conditions.

Look at the logic as well. If after the house is built, you potentially get $30 per week less rent, it is only $1,500 a year less income. If you sell and have to buy another investment unit, even over a ten-year period the loss of rent will be far less than the potential loss of relocating

The second point of logic is that when buyers flock to see properties at open for inspections, many of the properties on the market are surrounded by other blocks of units, which have significantly less appeal than a double storey semi-detached house and is just a regular part of living close to the city.

This same reasoning can also be applied when faced with special levies for general building maintenance.