If you’re lucky enough to own your own home and have a pretty decent backyard you could be sitting on a windfall.

As property prices continue their upward trajectory – prompting Reserve Bank Governor Glenn Stevens to concede he was concerned by the runaway sales results in Sydney – every inch of capital city real estate is becoming valuable.

“The size of our blocks are diminishing compared to what we used to live on in days gone by,” says CEO of Positive Real Estate, Sam Saggers.

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“So people who have these huge backyards because they bought the house 30 years ago are often sitting on valuable land.

“If you have a sizeable block of land in the inner city and your house is towards the front of the block then it’s a no-brainer to do something with it.”

One way to unlock the value of the backyard is to subdivide the property by building a second residence at the rear. The front property retains a small courtyard area to allow room for a back house or granny flat. Homeowners can then either sell both homes or rent out the back property.

If you’re lucky enough to own a decent-sized garden in Sydney, then you’re probably sitting on a an even bigger gold mine than you thought.

In some cases, it is easier to demolish the family home altogether, build a handful of brand new townhouses and pocket the profits.

Sounds easy, right?

Beware the costs

Owner of Backyard Buyers Kathy vant Foort has been project managing and building homes at the back of blocks since 2006, and can understand why so many people are keen to subdivide their properties.

But she cautions it is nowhere near as easy as it sounds.

“I am straight up with new clients and let them know that they are probably going to have to spend $50,000 before they even start building,” Ms vant Foort said.

“You have to pay for council permits, architectural plans, arborists, you have to worry about electrical pits and so forth.

“About 80 per cent of the time it is worth it, but you really have to be aware of what is involved.”

Beware the council laws

Planning permits and regulations differ from council to council, and from state to state, making every project different.

“In the last 12 months, for example, it has gotten a lot harder to build across Melbourne councils as they have changed their zoning,” Ms vant Foort said.

“There are a lot more boxes that need to be ticked.”

Mr Saggers also urges investors hoping to make a quick buck off their backyard to ensure they are fully versed in the local council restrictions.

“There are many parts of the puzzle you have to piece together,” he said.

“Some councils have stopped allowing new townhouses altogether particularly if it’s in a street of period homes.”

Turning your backyard into a building site may not be fun, but it can pay off if you do it right.

He added that there was always a risk the primary residence will be slightly devalued after subdivision because its lot size is reduced.

“So you need to balance that out with what the residences will both be worth,” he said.

Happy endings

As long as you have done your homework, there is considerable money to be made from a subdivision.

“My parents made more than $1 million in profit from a subdivision in inner-city Sydney,” Mr Saggers said.

“If you own your home outright the returns are considerable.”

If you are on a tight budget, Mr Saggers also recommends buying new blocks of land in the urban sprawl areas – while the returns will be lower than the inner-city, there will be fewer headaches with regards to zoning and councils.

“If you build in these newer areas on a vacant block of dirt then it is much easier, it is like a blank canvas,” he said.

“You may spend $650,000 all up and sell the home for $750,000 and you have made a profit of $100,000 in less than a year, which most people would be happy with.”