How to develop a lot. Need note paid, demo, subdivide, build.

Question

Greetings. My first post here.

I have a building on a 12k sqf lot. Three former city lots were combined and someone build their dream house on it.

I would like to demo the house, re-subdivide and build three or more units on the new parcels. one of the three was multifamily before. The others were SF.

I am in a hot market and the lot has a killer panoramic with the skyline view. Each building would be worth more than the one currently on there upon completion. I would sell off one to pay for the debt (or most of it.) Current value with existing building is about 2.5m including the existing structure. Each new building would be 3-4m.

I need to pay off the remaining note of $480K that is currently on it before I can subdivide and then would need funding to build. I have bought houses and flipped them, but never done developing.

Where do you start with something like this? With an Architect?  Bank? (what type) How do you find a good builder etc.

Any help appreciated

Sean Walton · Answer

I would check with the city zoning on what the minimum lot size is for what you want to build. A lot of cities 5000 SF is the min for a single family home so you may only be able to do 2 properties. I would also as a land use attorney or architect how long a lot split usually takes in your area. I had a friend in the bay area get stuck for 2+ years getting a lot split and plans approved. That is a lot of holding costs.

You may be able to do a planned unit development (PUD) to get 3 or 4 non-conforming lots approved but in a hot market the planning department may be swamped and this could lead to delays.

I'm not an expert on lending but I would think the land would need to be worth at least about $580k if you want to demolish the existing house and still maintain a 80% LTV.

Josh Cuthbertson · Answer

Start with the city planning department and verify the lot can be split again. Just to make sure the rules haven't changed and they'll will still allow the split.

Once you know that, have the discussion with them about how the subdivision works. They should line out the cost, estimates, and drawings required to complete the lot split. Typically this is done with a civil engineer.

Once the lot is approved and split, then you would work up the plans to bid the buildings.

Johnny Vong · Answer

@Mark V.

Have you checked the zoning on the lot? That will dictate how many lots/units you can fit on the property.

You should contact Terrance out of Bellevue- they do this all the time. Send me a PM and I'll give you my contact their. Good luck.

Eric Teran · Answer

@Marc V. you need to go speak to a civil engineer and a lawyer specializing in land deals. It might be as easy as you say but there are going be some expenses that you did not know exist. Here is a list:

• You will need separate water/sewer/electric/storm drain/gas connection for each house. This will cost thousands of dollars. For the house I am building in Alexandria, VA these items will cost me almost $20k. 
• I have looked at doing what you want to do and I spoke to a civil engineer. Their fee alone was around $75k to turn 3 lots into 4 lots. This was due to all the plans that was required from the municipality.
• @Josh Cuthbertson and @Sean Walton are correct about the planning department. Check with them if you need to do any special hearings or provide any extra plans. It might just be an informal process but add a few extra months of holding cost because best case scenario it will take a few extra months to get planning/zoning approval. After you get that approval then you can finally submit for a building permit.

Figure out how much time it might take you just to get a building permit and if the numbers still work I would then start looking at financing. Shop around. You can find 90% LTV.

I'm not trying to scare or dissuade you in doing it but usually there is a lot more to do when splitting lots. There are a lot of fees you probably are not aware of.

Julian Buick · Answer

@Marc V. talk to @Rich D'Agostino at Builders Capital. They specialize in this type of thing and will be able to help with advice and possibly financing.

Ben Freeburg · Answer

@Marc V. depending on what type of property you are building, two companies in Seattle come to mind.  I would look at Builder's Capital or Blueprint Capital.  If you Google either you will find them.   They both have good reputations in the market.  It may be worth talking to both about your ideas to get different viewpoints and pricing. This looks like a great case study if you keep track of the numbers, etc. Good luck!

George Taylor · Answer

@Marc V. Our company is in Seattle and I might be able to help with their guidance. PM me when you get a chance. Thanks..

Marc V. · Answer

Thanks! I think I am good with the 4000sqf since the next 4 adjacent lots are all 4000sqf, and one of those was 8000 before subdivision into two a few years ago, but checking obviously is the right thing to do. I spoke informally with an architect once a few years ago and he looked at his map and thought the subdividing part would be no problem.

The land of these should easily clear 580k.

I guess my question comes more down to a timeline and financing.

What to do first and who one would contact?

I think I need 480k to pay off the existing note, because as far as I understand, if I proceeded to subdivide with a mortgage on it the lender could call it in.  Are there lenders that would borrow for the whole process, pay down the mortgage, subdivide and finance the development?

Is that the best way to go?

Marc V. · Answer

Thanks, good advice. While I haven't done that, it is highly unlikely it could not be done. The city is desperate for more units here. If I go on the premise that it can be done and validate it, my next  question would be how to find a lender that will borrow the $480k to pay off the note so the subdivide can happen and the monies to then develop and build?

What type lender would do this kind of a deal?

How to develop a lot. Need note paid, demo, subdivide, build.

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