1st Time Dividing Lot In Multiple Pieces of Land - 100k + Profits

13 Replies

Hey BiggerPockets community!

I thought I would share my most recent success story in order to help inspire new/beginner real estate investors. 

On June 4 2015, we bought an old house (1951) that had a pretty huge lot (32 000 square feet) in a residential area near Montreal, Canada. What was nice about this purchase is that the house was located on the left-hand side of the lot leaving the majority of the land "ready-to-build" on the other side. The fact that this area has all city services (water and sewer), that the house was not located in the middle of the lot, and that the city permitted us to divide the lot all made it a great deal for us!

Here are the numbers, because we should not be afraid to talk about numbers. This is what motivates us to always do better!

We paid 279k for the property sold by an old lady who wanted to move to a smaller place (she could not maintain the place anymore). We incurred 45k in total expenses in renovating the house (flipping it) and splitting the lot in 4 (taxes, land surveyor fees, etc). 

We sold the house in 36 hours for 220k (we aimed for 205k). We sold the 3 pieces of land for 80k each (we aimed for 85k). All through a broker.

Our net profit (before taxes) has been around 110k! Not too bad for a 3-month project for which we devoted a few part-time hours.

If we could do it me and my partner as a part-time project with almost no money, you can do it too :)! Don't let any excuse get in your way. If you don't have the money (like us), find money somewhere else.

Thank you for sharing your story. 

WOW, Guillaume, SO proud of you !!!!!!!!!

I will pass this info on to my fellow investors...

Merci Christine ;)! Thanks Jason!

Nice work Guilliame! Thanks for sharing. This is such an inspiring story, I would love to find a deal like this one. How difficult did you find the process of dividing the land into 4 lots?

@Dan Welch The city we were dealing with was pretty lenient. It is not always the case though! We are working on several other projects like this one, and some cities are giving us a hard time. The hardest part is always to get confirmation from the city that you can subdivide before buying the property (not always possible to get formal confirmation), otherwise it is too risky to get stock with it if the city decides to decline your project.

Hope it helps!

Thats really resourceful Guillaume ... way to go!

Great success story. We are trying to do the same on a 46 acre place. In the event that only one lot would have sold, how would the capital gains taxes be calculated? Would you have any knowledge or expertise on the following transaction? We purchased 46 acres with a house... purchase price was about $167k. If we sell the house and 5 acres for $95k, how would the capital gains be calculated if I keep the remaining acres?
Originally posted by @Les Tindell :
Great success story. We are trying to do the same on a 46 acre place. In the event that only one lot would have sold, how would the capital gains taxes be calculated?

Would you have any knowledge or expertise on the following transaction?

We purchased 46 acres with a house... purchase price was about $167k.

If we sell the house and 5 acres for $95k, how would the capital gains be calculated if I keep the remaining acres?

I truly wish I could help, but I do not know the US tax laws. We bought the property under a corporation, which makes the sale of the house + 3 lots taxable at 100% (no capital gain possible), with a tax rate of 19% here in Canada. No matter if you are in the US or in Canada, investors should always consult a tax expert to make sure to avoid any potential tax evasion problems. Good luck on your deal!

Originally posted by @Guillaume D. :
I truly wish I could help, but I do not know the US tax laws. We bought the property under a corporation, which makes the sale of the house + 3 lots taxable at 100% (no capital gain possible), with a tax rate of 19% here in Canada. No matter if you are in the US or in Canada, investors should always consult a tax expert to make sure to avoid any potential tax evasion problems. Good luck on your deal!

 Guillaume:

The reason you were taxed as 100% income versus capital gains was more due to the nature of your transaction (i.e. subdividing, flipping) which saw the property treated as inventory not a capital investment and not because your purchased the property with a corporation (we do that all the time).

Corporations can realize capital gains just the same as corporeal individuals.

You might also run into HST implications. Was HST in addition to the sale of the lots? 

Land is subject to HST so is any sort of flipping. But usually the investors are not aware of it and CRA will come knocking. 

@Roy N. :

 You are correct. Maybe I didn't express myself the right way. It just so happens that, in our particular case, the nature of our deals are 100% taxable.

Originally posted by @Gary McGowan :

You might also run into HST implications. Was HST in addition to the sale of the lots? 

Land is subject to HST so is any sort of flipping. But usually the investors are not aware of it and CRA will come knocking. 

 In our particular case, we had to sell the lots plus applicable taxes indeed since we subdivided the original lot in more than 2 pieces (4 pieces in our transaction). 

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