Have property, needing funds to develop whats the best strategy?

Question

Hi all,

We have family property that a portion was recently released from the ALR. We're now looking at submitting a subdivision proposal. The neighbours on both sides have recently subdivided and sold off almost all their lots. They're telling us it has cost them approx $25k/lot to develop which would put us around the $200k mark. We plan on doing a significant portion of the developing ourselves which should bring costs down but we are trying to figure out the best option for financing.

My wife and I are picking up and moving to a new town to develop this property. We'll have accommodations and no debt and wont have a problem finding jobs in the meantime as we are both professionals. Currently we have a combined income of about $180k but very little in savings...just some properties.

My question, given the circumstance is there a better option than a heloc I should be looking into for financing? We do have access to $70k through LOC's right now.

We also plan on forming a company before this all sets in motion, i'm not sure if that matters or if you have any advice regarding this, i'll continue my search.

thanks!

Roy N. · Answer

@Mindy Jensen - thanks for the tag.

@Mike Brautigam - I would start with lining-up funding options for the various stages of development.

The problem you are going to run into up front is many lenders (particularly small credit unions) do not fund land development or spec builds.  Some larger lenders may - but will be looking for a track record and may want to mortgage other properties as collateral.

To go the traditional lender route, you might need to partner with a proven developer.

Other alternatives available to you are:

• second tier ("B") lenders who will sometimes have wider lending practices than the Big-5 or credit unions.  You will pay a much higher rate;
• private money - network with family, friends, etc.
• pre-selling lots - you could take a deposit and presell lots.

Mindy Jensen · Answer

@Mike Brautigam , your profile says British Columbia. Is the property in Canada, too? I know of US rehab loans, but I'm not familiar with Canadian loan programs.

Tagging @Roy N.  to see if he can help out.

Mike Brautigam · Answer

the house is on the remaining 13.2 acres, no way around that. We don't want to sell that until we can pull from ALR and subdivide, even if it is 20 years from now (though the area is developing substantially). Property is in the city, all connections are at property line, no wells, no septic.

George Holmes · Answer

in reviewing your initial post, 3.84 of the 17 acres has been removed from the ALR and you have been told that the neighbouring properties were subdivided at a cost of $25,000 per lot.  You are seeking $200,000 so I assume that your initial goal is to create 8 new lots. Is the house on the 3.84 acre parcel?  A land surveyor could lay out a subdivision for you and perhaps the house would be on of the newly created lots. Check with builders who are buying and building on your neighbors lots for potential sales. Consider selling the fixer-upper house to create your source of capital. If you need to service the lots -water, power, sewers or sewage treatment, roads, sidewalks etc. the $25,000 per lot seems very low.  Also you may find that using a mortgage broker to access development funds may be the the best solution.  They may have builders looking for lots.

Mike Brautigam · Answer

Thanks Mindy and Roy.

The property has a house on it and to keep it simple- it's in our name, we don't have a mortgage on it or anything else. Is it that difficult to pull money out of it, I guess because it isnt our primary residence? We'll be living in a family vacation home until everything is developed then rebuild, or gut and renovate the current house on the property once we have more funds. We just don't want anything financially slowing us down on getting the property developed. We don't have any bills in our name at the home where we will be residing, can we attach our name to a few bills at that address for it to be a primary? We will be living on the property part time in our travel trailer...

Also, preselling lots in Canada...I guess I should start looking into that. Thanks!

Mike Brautigam · Answer

And yes, the property is in BC as well :)

Mike Brautigam · Answer

Thanks for the reply. Where do I access programs like these, or is it best just to check in with the bank or a lawyer?

Mike Brautigam · Answer

I should say that the assessed value of the property is approx 600k, no debt associated but since the area has boomed in the past year i'm sure the assessed value will go through the roof. it's 17 acres, with a house on it that is rented out. The front 3.84 acres has been removed and is ready for subdivision. We'd be looking to pull out approx 200k over time. Neighbouring lots in the subdivision have mostly sold (30 lots) for roughly $180-$210k each and we would plan to pay off the debt with the first sale. We're expecting a development time frame of 9 months to 1 year and will have no problem covering the interest costs associated.

Have property, needing funds to develop whats the best strategy?

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