How to turn a double lot into two properties

Question

This seems like such a unique and interesting deal but I want to make sure I have the best strategy for it.

So as I mentioned above, there is a property that sits on a double lot and happens to have 2 houses on it.

The city has already verbally confirmed that it can be divided into 2 properties. Each house sites evenly on each side of the lot. The lot is around .36 acre.

If I get a conventional loan on the property as is, I would not be able to turn the property into 2 parcels because at that point, I would be in default of the loan.

However, if I get hardmoney for the deal, it is going to take some time to get the property rezoned as 2 parcels. I don't want to take on hardmoney for an unknown amount of time.

However with this said, the ARV for both properties is a combined $150k (or $100/sqft) over purchase price. The purchase price is at $50/sqft.

I am being very conservative because of the age of the properties and any possible market shifts in the next 4-6 months. Currently, the average sqft price in this neighborhood is $115-$147 depending on finishes.

Ultimately the plan is to acquire the property, split the lot into 2 parcels, renovate both properties to achieve premium rental rates for that area and then pull the cash on both properties at 75% ltv and go then go fine another deal!

I would love to hear anyone's advice on what they think the best strategy would be for this deal.

Thank you!

Andrew Postell · Answer

@David Klefeker you've got some good pointers already above.  Usually, the problem with conventional lending is the "comparable sales" that you will need on the appraisal.  So how many other 2 single family homes on 1 or 2 lots are their to use in the area?  If there aren't any, then it might be hard to get that conventional loan.  Now, the same rules should apply here if you are analyzing this deal.  Meaning, I would highly recommend that your purchase price + rehab = 75% or 80% of the ARV on the property.  And if you want to use the TOTAL ARV, then that's find too.

Make sure to calculate the cost of parceling out one of the properties (generally about $2,000-$4,000 depending on your area).  The BRRRR method should certainly be used here too.  So BUY with a HML and REFINANCE with 2 separate conventional loans would be a reasonable plan.  Just make sure to get prequalified for that type of a loan if you need it.  Good luck!

Matt Devincenzo · Answer

So the process will vary by state. Assuming this is FL, I recently completed one in Sanforsd and the process is fairly easy and is essentially an administrative approval that your two 'lots' are or can be two lots. If they are then they may give you some basic conditions that need to be done before the lots could be sold separatly.

You do have an incorrect assumption though, the conventional loan shouldn't present a problem. The loan will secure "lots 1 and 2 of XXX" after they're segregated they will still be securing the loan. The difficulty would only come in when you need to pay off the loan and you may need a partial release of lien. At that point if you needed to use HML temporarily you should have a defined timeframe to work with.