An important element to consider is what you will do with the property between the time that you buy it and realize your project. I imagine this is less important for a larger developer who has Capital. But for regular people like us, these details can make a big difference. What you will do with the property in the meantime will inform what type of property you can buy.
If the property is already zoned for what you need, then you are looking at the amount of time to design the project and get permits in place – 3 to 6 months if you’re on it and you can do some of the design work before the sale closes. If the property has to be rezoned, plan on a year before you break ground.
Let’s consider some options:
- Bare land
- Property with a tear down
- Property with a habitable residence
Bare land: Good luck finding anything in the walkable urban core, and if you do, it will be expensive (unless you are in a city recovering from urban flight/blight). In Victoria, unless you have a lot of cash, build higher density, or build very cheaply, the project is unlikely to be financially viable. When I first started my property search, I looked for any bare land lots that were below $400,000, but really the land would have to be less than $300,000 to be even remotely viable, assuming $200/SF build cost for 2000 SF (house + rental suite). If you get into higher density options, like a row house, the financial picture starts to look better, but you have to carry the cost of owning the bare land while you go through the design, rezoning, and/or permitting process, and the overall project costs are higher.
Property with a tear down: We looked at a couple of properties that fit this description (whether or not the seller agreed). One house we looked at was in very poor shape, but on a nice lot in a good location. It had elevated exterior doors with no stairs, rotting wood, a sagging, moss covered roof. The property was zoned for duplex, but was not currently a duplex. To make the property habitable while we went through design, we would have to do a lot of work.
Insurance can be an issue with these properties – don’t count on being able to get insurance without a lot of work/investment to rent it out in the short term. The most viable option if purchasing a property with a teardown is to purchase it with enough of a down payment that you can hold it without living in it or renting it out. If you can buy the land outright with cash, even better, although that was not an option for us. You will still need some kind of insurance on the property, though, and I’d recommend researching the cost of vacant house/uninhabited house insurance before plunging in.
Property with a habitable residence: If you plan to retain the existing residence, you have two key issues to consider: renting in the short term vs. moving in. Mortgage options differ if you are renting a house vs. using it as your primary residence. We were able to purchase our house with 14% down through a CMHC insured mortgage, and keep more cash on hand to fund the development (although we took a hit by adding the cost of CMHC mortgage insurance to our total mortgage). If we had financed with the intent of renting the house in the short term, we would have needed 20% down, and may not have gotten as favourable a lending rate. People sometimes bend the rules by “intending” to use the property as their primary residence, but then changing their intentions a month later.
If it’s a habitable house and you want to tear it down and start fresh, you are then faced with making a case that either the house is not worth saving, or potentially moving the house to another site.
Either way, you may be faced with some short term costs to meet the insurance providers’ requirements, which is why I recommend getting a house inspection done regardless of whether it is part of the sale conditions.
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