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Updated over 8 years ago on . Most recent reply

User Stats

267
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110
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Rudy Manna
  • Investor
  • Redmond, WA
110
Votes |
267
Posts

Subdivide and create free lot

Rudy Manna
  • Investor
  • Redmond, WA
Posted

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.

Most Popular Reply

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38
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42
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Jonathan Blum
  • Rental Property Investor
  • The Dalles, OR
42
Votes |
38
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Jonathan Blum
  • Rental Property Investor
  • The Dalles, OR
Replied

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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