Development Lot- Next Steps

[Harrison D.]

The "Problem":

In June, I bought a duplex on a large lot in a gentrifying area with the intention severe the lot into 3 parcels and build 2 spec homes, while keeping the original duplex as a rental. I paid $420k.

I have gone through the city's process for severance and everything has been approved on their end. The only issue is the bank's appraisal on the original duplex after the severance, with a smaller parcel, got valued at $375,000. This means I have to pay down the mortgage ~100k in order to bring the equity back to the required amount. If I do not pay down the equity, then the bank will have a lien on the newly created parcels, so I won't be able to pull a construction loan to commence the 2 spec builds.

The Options:

• Sell the duplex , pay off the mortgage, get the 2 lots free and clear, commence the spec build. This assumes I can get close to $420k duplex on now smaller lot. Could be sold to a landlord looking for appreciation (gentrifying area) but not a huge cash king as it rents for $2150/month. The most obvious buyer to me would be a spec builder, who could tear down the duplex, build 2 homes, potential profit ~200k. 

OR

• Keep the duplex as a rental, sell the newly created parcels, pay down the required equity on the original duplex. Recent comps show potential sale price for both parcels to be $450k. 

OR any suggestions BP may have. I know this is a complicated deal, I hope I clarified things. It's located in Ontario, Canada.