A subdividable property is a property divided into two or more lots and the process behind this process can be sectioned into 4 parts.
- Due Diligence.
- Timing.
- Mortgage.
- ROI – Return on Investment.
In 2018, my clients purchased a property in Delta for $1.1 million. After subdividing the property, fixing up the application, finishing the third reading, the value of the property grew to $1.6 million.
Half a million in less than three years. That’s the reason why we recommend subdividable properties to our clients.
A subdividable property is a property divided into two or more lots and the process behind this process can be sectioned into 4 parts.
- Due Diligence.
- Timing.
- Mortgage.
- ROI – Return on Investment.
DUE DILIGENCE
There is a misconception that as long as the property is sizeable enough that it can be subdivided and that just isn’t true. There are many inspections and examinations to review before your property can be subdivided. The due diligence may cost you a few thousand dollars, but it’s worth it because you’re going to be spending millions of dollars and you don’t want to waste your money.
1) The OCP (Official Community Plan)
Reach out to the planning department in the city to find out about OCP for subdivision. They will give you an idea if it will be possible or not. If the answer is no, they will tell you upfront. If it is possible, they will have you put in an application and complete the process before confirming if you can or cannot subdivide the property.
2) Talk to a Civil Engineer and Land Surveyor
With the land surveyor where it will go to, the civil engineer and the civil engineer can confirm it supports the subdivision and what will be the size of the land going to be.
3) Hire an Arborist
Aside from just the trees on your property, there is also the trees on your neighboring properties to be aware of. If there are any trees encroaching on your property from bordering land there is a good chance that the city will allow you to cut it and they will ask you to replace it with either another tree or with cash. Hire an arborist to get the best survey of the situation and talk to your neighbors to make sure that things transpire smoothly.
TIMELINE
If somebody tells you to six to eight months, you will be able to subdivide the property with the building permit. Its wrong. The whole process takes roughly 2 years minimum.
1) Rezoning
The property has an existing zoning and you must re-zoned to smaller lots. The process is; first reading, second reading and third reading (or otherwise called PLA). This third reading takes about six to eight months.
2) 4th Reading
During this reading the civil engineers give you the exact cost- not a ballpark number. More than just dividing the land price into two, there are many different things to factor, especially on the corner properties. Always check with the civil engineer how much it’s going to cost you.
3) City Approval
Once the civil engineer has drafted a proposal, it goes to the city who will then be asking for a security deposit on the basis of cost for what the civil engineer has quoted you for. So always check with the civil engineer, run your numbers, and get into the property to be buying it.”
MORTGAGE
This is the most important part. Mortgages can be either residential or commercial.
1) Residential
If you will be getting a residential mortgage. Make sure that your savings are more than what the down payment would be. Chances are that the appraisal of the property will be less than your purchasing price as the owner is selling the property as a ‘subdivision’ which the bank does not consider. Therefore, you will have to prepare enough money to the portion of the property price which the bank will not cover.
2) Commercial
Banks for commercial lending will get you the correct lending and appraise your property based on the full intended construction so you don’t need to worry about preparing extra for the down payment. However there is a higher interest fee as well as additional lending fees that add up to quite a bit as well.
We recommend to have a little extra money, get a residential mortgage, wait until the PLA is done and the third reading is being done, and then you can convert it. Once you getting into DP, when you’re going to be starting to service it, then you can convert it into a commercial type that would be more beneficial.
ROI
The most important question to ask yourself is what is your return on investment is when you buy into subdivided property and should you buy it compared to the regular property?
We always reccomend investing in a subdividable property, whenever possible. The reason for that is the appreciation on the subdivided property after getting rezoned is going to be much higher than the regular property.
You will be making much more money on it without the complexities of building a new development a top of it. By hiring the right professionals, the consultants, and those people will be behind the scenes, do all the process for you and get you the third reading, and when the market is right, sell for a huge profit.
Contact us to start investing into subdividable properties!
Join our newsletter and stay up to date on our insight into the real estate market, and for more helpful tips like this.
