Subdivide and create free lot

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Subdivide and create free lot

Rudy Manna
Investor · Redmond, WA · Member since 2016 · 267 posts · 110 votes

I have been doing buy and hold deals so far. Now I feel like taking the plunge and take it to the next level. My plan is to buy a house in a large lot, subdivide and create a free lot. Put the house for rent and go for new construction in the free lot. Experts such as  @Ryland Taniguchi among others are implementing this strategy at scale. 

I need to do some research/studying so that I can evaluate feasibility before going for the deal. Can the experts give me some guidance around the following:

1. If I take bank loan to buy, will that cause any problem with applying for the subdivision? I guess I can refinance after the subdivision minus the plot, and hold the plot free and clear. Looking for some real experience.

2. Are there any zoning restrictions/requirements I should look for?

3. What would be the minimum lot size to be eligible for subdivision? Are there any formula or any such thing?

I am considering south side of Seattle such as Tacoma, Olympia, Puyallup etc.

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Jonathan Blum
Rental Property Investor · The Dalles, OR · Member since 2016 · 38 posts · 42 votes
10y

Go to City Planning.  They are the best resource to tell you if your lot (or lot you're looking at) can be split or no.  They can pull the lot size, dimensions, map, and give you a realistic idea of if it will work or not.  A survey company can do that for you for $1000s, or just ask planning and they'll tell you the feasibility and process for free.  They'll also be the people to look at and approve your application, so its good to build a relationship with them early and make friends.  Let them know you want to do good things for the community by providing housing, value, improving the neighborhood, ect...

If you buy the property with a conventional loan it is very difficult to split.  It is better to buy for cash, split, and then refinance on the house on the one lot while leaving your new lot unencumbered.

Most planning departments will do this in 3-5 weeks, but the process can be drawn out to many months depending on if you need a survey, restrictions, ect...  I just did one and the full process with permits and survey cost more than $5,000.  That said, $5,000 is the cheapest piece of land you'll find anywhere, making this a very good investment.

One other tip:  Commercial lending looks at the price you paid for a piece of property as part of the valuation for building/ new construction lending.  If you managed to get the land for zero, that is approximately the value they will give you on financing new construction there.  I had this idea they would say, "...oh, you own a lot that is worth $50k, and you want to build for $200k, which means you have 20% equity of the $250k finished product... so we'll loan you $200k with no money down..."  Sadly, in reality, they say, "You own a lot and want to borrow $200k.  You'll need 20-25% down to get that loan."  Bummer.

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  • Joe Sno
    Tacoma, WA · Member since 2015 · 13 posts · 2 votes
    10y

    I am no expert but am getting quite close to finishing my first one.  It definitely cost much more than I would have thought.  My survey fees cost about $4,000 and the city of Tacoma's fee was $960.  A simple survey is much cheaper but when you subdivide, they need to rewrite the legal descriptions of the new lots and submit multiple sketches to the city so the cost goes up considerably.

    It's pretty clear my current lender doesn't want to lessen their security, as mine has a house that's on the subdividing line that has to be removed (it has no value), but they did provide me a lengthy form to fill out to consider it.  They're not local so I have called many local banks to try to fund this.  I think I may have found one but you may have an easier time if you're only considering lots where the house doesn't need to be removed.

    Every city will have their own minimum lot sizes depending on the zoning.  For Tacoma, it's 5,000 sq. ft. or 4,500 for a small lot (the city controls what kind of house you can build on one of their "small lots"--basically it has to look like a cottage).  Most of the bigger cities info, you can find online.  I've tried researching online, smaller towns, like University Place and Milton and couldn't find anything though.  If you want to know for sure, visit the city's permit department.

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  • Paul Sofia
    Lender · Charlotte, NC · Member since 2016 · 374 posts · 172 votes
    10y

    Contact planning and zoning first to see what the requirements are, ie. minimum size lot to build, set backs and road frontage requirements.  If you meet that criteria, check with lender and see if they will release.  They may require you to pay down the note a bit unless you have enough equity to satisfy them.

    0Reply
  • Connor Riley
    Olympia, WA · Member since 2016 · 7 posts · 0 votes
    10y

    What Paul said. Not sure about Pierce County, but Thurston County has some restrictions on being able to build on lots under 5 acres; to be fair, though, my experience is limited to more rural areas. Most of the housing developments that are going in now were actually subdivided 20+ years ago when the zoning requirements were different. That's a big reason why you see areas like Yelm with more significant population growth/real estate development and sales than what you might expect given their non-JBLM economies. Its also why you see smaller lots being so valuable. 

    When we built my current house, we looked at the the minimum lot size, set backs, and frontage like Paul mentioned; because it's rural, we also had to look at septic, which has a whole 'nother set of rules about where you can place the drain field and tank in relation to the property lines. Thankfully the drainage here is good and we were able to get it all installed below grade....

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  • Rudy Manna
    OP
    Investor · Redmond, WA · Member since 2016 · 267 posts · 110 votes
    10y

    Thanks all. This is indeed very helpful.. 

    @Joe 

    @Joe Sno Can you refer me to the online info on minimum lot size info for Tacoma as you mentioned? It will be a good start for me before I start looking

    0Reply
  • Joe Sno
    Tacoma, WA · Member since 2015 · 13 posts · 2 votes
    10y

    http://cms.cityoftacoma.org/cityclerk/Files/MunicipalCode/Title13-LandUseRegulatoryCode.PDF

    Section 13.06 is where you'll find zoning.  Scroll down to chart D-Lot size and building envelope standards.

    0Reply
  • Rudy Manna
    OP
    Investor · Redmond, WA · Member since 2016 · 267 posts · 110 votes
    10y

    Thanks. Is there a place I can find the current zoning code for a house in the market. Apparently can't find in MLS or redfin.

    @Joe Sno @Paul Sofia  @Connor Riley

    0Reply
  • Connor Riley
    Olympia, WA · Member since 2016 · 7 posts · 0 votes
    10y

    http://www.co.thurston.wa.us/permitting/landuse/la...

    That's the link to the Thurston County zoning site. Depending on what you're looking for, there's a few extra links and numbers to call. Some are more valuable if you know a specific parcel number or address, but if you're wanting to know about general areas, its probably a good idea to call the county to get an idea of the various restrictions and requirements for each type of zone. The Thurston County Comprehensive Plan also includes some maps that show where the boundaries of the various zones are. Map 19 seems to be what you're looking for, as it includes all of the boundaries of each type of zone on it for after the call to the county (their number is also on the linked site above).

    0Reply
  • Joe Sno
    Tacoma, WA · Member since 2015 · 13 posts · 2 votes
    10y

    This will tell you what the property is zoned:  http://www.govme.org/govME/AddApps/Inter/ParcelAnalysis/PAMain.aspx

    1Reply
  • Rudy Manna
    OP
    Investor · Redmond, WA · Member since 2016 · 267 posts · 110 votes
    10y

    thanks a ton. Couple of last questions:

    - how long does it take from application to approval. Any rough timeline will be helpful..

    - is there any service( real estate attorney/ surveyor?) who can help with  basic feasibility analysis before I buy?

    Thanks again for sharing the real world perspective.

    0Reply
  • Joe Sno
    Tacoma, WA · Member since 2015 · 13 posts · 2 votes
    10y

    It took the survey/engineer company about 3-4 weeks to get the request and sketches submitted to the city.  My subdivision hasn't been approved yet but it's been about 3 weeks.  Tacoma's website lets you see the status of your permit in regards to each department.  I can see it's about 70% of the way through and hoping to hear something in the next week or so.

    So I would count on around 2 months or more once you get started.

    I honestly think your best place for feasibility is the city's permit department.  They have always been very helpful when I've gone down there and never had to wait more than an hour to see someone. 

    You may also find this helpful if you're looking in Tacoma (sometimes you have to click on the map to get it to come up):

    http://www.govme.org/gMap/MGMain.aspx

    It's what the city department uses.  You can see the lot your interested by doing an address search and if you open up the surface features, you can add the existing building footprints in to see if there is actually room for another lot in regards to the house.  The existing house must meet setbacks with your new boundary line.  If it's zoned R4, that's 5 feet.  You could, of course, apply for a variance if there is not enough setback but it cost money and there are no guarantees.

    One more thing to keep in mind, is the city does not like to zig zag boundary lines.  They prefer a straight line.  So, if the house sits over the new boundary line, let's say, 5 feet and with setback that's a total of 10 feet, you can't make up that 10 feet by going 10 feet the other way in the back yard.  Hope that makes sense.

    0Reply
  • Joe Sno
    Tacoma, WA · Member since 2015 · 13 posts · 2 votes
    10y

    I forgot to mention, that in Gmap, you can right click and there is also a measuring tool.  Super handy!

    0Reply
  • Ryland Taniguchi
    San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    10y
    Originally posted by @Rudy Manna:

    I have been doing buy and hold deals so far. Now I feel like taking the plunge and take it to the next level. My plan is to buy a house in a large lot, subdivide and create a free lot. Put the house for rent and go for new construction in the free lot. Experts such as  @Ryland Taniguchi among others are implementing this strategy at scale. 

    I need to do some research/studying so that I can evaluate feasibility before going for the deal. Can the experts give me some guidance around the following:

    1. If I take bank loan to buy, will that cause any problem with applying for the subdivision? I guess I can refinance after the subdivision minus the plot, and hold the plot free and clear. Looking for some real experience.

    2. Are there any zoning restrictions/requirements I should look for?

    3. What would be the minimum lot size to be eligible for subdivision? Are there any formula or any such thing?

    I am considering south side of Seattle such as Tacoma, Olympia, Puyallup etc.

     To answer your question...

    1) I would either buy with cash or HML. The banks will not adjust the lot line unless you pay them. Some HML will allow you to do a partial deed release based on a survey which allows you get the collateral released when the property is subdivided.

    You usually have to subdivided and get parcel # and then refinance the part with the land on it. 

    2) In Tacoma, I look for R2 zoning with lots over 13,000 sq ft. But keep in mind that just because the lot is 13,000 doesn't mean you can subdivide into two 6500 lots. Things like wet lands, critical slope, and setbacks can require more land to subdivide.

    3) I think the minimum lot size for the R2 is 6500 sq ft but I am typing this response off the top of my head while pushing my son in a stroller to sleep so I could be wrong. Lol

    I don't actually build these homes in Tacoma myself. I hire Reality Homes because they can build cheap than both of my own construction companies. It might be helpful to camp out at he Tacoma Planning Dept and ask lots of questions. 

    0Reply
  • Eboni Allen
    Real Estate Broker · Tacoma, WA · Member since 2016 · 34 posts · 14 votes
    10y
    Ryland Taniguchi how many times have you used Reality? Would you care if I knew where you had them build on your lots so I can do a drive by? I always picture homes like that being on large .5+ acre lots, not city lots...so I am curious which floor plans you chose and how they turned out.
    0Reply
  • Ryland Taniguchi
    San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    10y

    I've used them seven times. Not a lot because I build my own homes. One of them is a 3300 mansion that was on a slope.

    I am doing one here pretty soon in Tacoma if you want to get an idea on what we do there.

    0Reply
  • Rudy Manna
    OP
    Investor · Redmond, WA · Member since 2016 · 267 posts · 110 votes
    10y
    Originally posted by @Ryland Taniguchi:
    Originally posted by @Rudy Manna:

    I have been doing buy and hold deals so far. Now I feel like taking the plunge and take it to the next level. My plan is to buy a house in a large lot, subdivide and create a free lot. Put the house for rent and go for new construction in the free lot. Experts such as  @Ryland Taniguchi among others are implementing this strategy at scale. 

    I need to do some research/studying so that I can evaluate feasibility before going for the deal. Can the experts give me some guidance around the following:

    1. If I take bank loan to buy, will that cause any problem with applying for the subdivision? I guess I can refinance after the subdivision minus the plot, and hold the plot free and clear. Looking for some real experience.

    2. Are there any zoning restrictions/requirements I should look for?

    3. What would be the minimum lot size to be eligible for subdivision? Are there any formula or any such thing?

    I am considering south side of Seattle such as Tacoma, Olympia, Puyallup etc.

     To answer your question...

    1) I would either buy with cash or HML. The banks will not adjust the lot line unless you pay them. Some HML will allow you to do a partial deed release based on a survey which allows you get the collateral released when the property is subdivided.

    You usually have to subdivided and get parcel # and then refinance the part with the land on it. 

    2) In Tacoma, I look for R2 zoning with lots over 13,000 sq ft. But keep in mind that just because the lot is 13,000 doesn't mean you can subdivide into two 6500 lots. Things like wet lands, critical slope, and setbacks can require more land to subdivide.

    3) I think the minimum lot size for the R2 is 6500 sq ft but I am typing this response off the top of my head while pushing my son in a stroller to sleep so I could be wrong. Lol

    I don't actually build these homes in Tacoma myself. I hire Reality Homes because they can build cheap than both of my own construction companies. It might be helpful to camp out at he Tacoma Planning Dept and ask lots of questions. 

     Any rough estimate for sqft cost with realty home? These will be pretty basic homes, so any chance per sqft cost can get down to $80 or so?

    0Reply
  • Jonathan Blum
    Rental Property Investor · The Dalles, OR · Member since 2016 · 38 posts · 42 votes
    10y

    Go to City Planning.  They are the best resource to tell you if your lot (or lot you're looking at) can be split or no.  They can pull the lot size, dimensions, map, and give you a realistic idea of if it will work or not.  A survey company can do that for you for $1000s, or just ask planning and they'll tell you the feasibility and process for free.  They'll also be the people to look at and approve your application, so its good to build a relationship with them early and make friends.  Let them know you want to do good things for the community by providing housing, value, improving the neighborhood, ect...

    If you buy the property with a conventional loan it is very difficult to split.  It is better to buy for cash, split, and then refinance on the house on the one lot while leaving your new lot unencumbered.

    Most planning departments will do this in 3-5 weeks, but the process can be drawn out to many months depending on if you need a survey, restrictions, ect...  I just did one and the full process with permits and survey cost more than $5,000.  That said, $5,000 is the cheapest piece of land you'll find anywhere, making this a very good investment.

    One other tip:  Commercial lending looks at the price you paid for a piece of property as part of the valuation for building/ new construction lending.  If you managed to get the land for zero, that is approximately the value they will give you on financing new construction there.  I had this idea they would say, "...oh, you own a lot that is worth $50k, and you want to build for $200k, which means you have 20% equity of the $250k finished product... so we'll loan you $200k with no money down..."  Sadly, in reality, they say, "You own a lot and want to borrow $200k.  You'll need 20-25% down to get that loan."  Bummer.

    2Reply
  • Steve Haight
    Las Vegas, NV · Member since 2014 · 732 posts · 137 votes
    10y

    @Rudy Manna

    I remember the day when we did land divisions in clark county for $250. Its been so long since I did a split. Good luck on your project.

    0Reply
  • Ryland Taniguchi
    San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    10y
    Originally posted by @Rudy Manna:
    Originally posted by @Ryland Taniguchi:
    Originally posted by @Rudy Manna:

    I have been doing buy and hold deals so far. Now I feel like taking the plunge and take it to the next level. My plan is to buy a house in a large lot, subdivide and create a free lot. Put the house for rent and go for new construction in the free lot. Experts such as  @Ryland Taniguchi among others are implementing this strategy at scale. 

    I need to do some research/studying so that I can evaluate feasibility before going for the deal. Can the experts give me some guidance around the following:

    1. If I take bank loan to buy, will that cause any problem with applying for the subdivision? I guess I can refinance after the subdivision minus the plot, and hold the plot free and clear. Looking for some real experience.

    2. Are there any zoning restrictions/requirements I should look for?

    3. What would be the minimum lot size to be eligible for subdivision? Are there any formula or any such thing?

    I am considering south side of Seattle such as Tacoma, Olympia, Puyallup etc.

     To answer your question...

    1) I would either buy with cash or HML. The banks will not adjust the lot line unless you pay them. Some HML will allow you to do a partial deed release based on a survey which allows you get the collateral released when the property is subdivided.

    You usually have to subdivided and get parcel # and then refinance the part with the land on it. 

    2) In Tacoma, I look for R2 zoning with lots over 13,000 sq ft. But keep in mind that just because the lot is 13,000 doesn't mean you can subdivide into two 6500 lots. Things like wet lands, critical slope, and setbacks can require more land to subdivide.

    3) I think the minimum lot size for the R2 is 6500 sq ft but I am typing this response off the top of my head while pushing my son in a stroller to sleep so I could be wrong. Lol

    I don't actually build these homes in Tacoma myself. I hire Reality Homes because they can build cheap than both of my own construction companies. It might be helpful to camp out at he Tacoma Planning Dept and ask lots of questions. 

     Any rough estimate for sqft cost with realty home? These will be pretty basic homes, so any chance per sqft cost can get down to $80 or so?

     I would guess $100 per sq ft. I haven't used them for a little over a year and construction prices have gone way up in that period. I will know soon as I am hiring them now for a Tacoma build-out.

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