If you own a house, vacant land, or any type of property, you may have thought to yourself… How could I make money from this? Or add value? Real Estate is one of the greatest (and largest) investments you can make and has proven year over year to be one of the most successful ways to create wealth.
I wanted to give you a quick overview of the Subdivision process and allow you to determine if subdividing is a possibility for your property. If you have any questions after reading this, please feel free to reach out, I would be happy to discuss further.
Part 1: To Subdivide or Not Subdivide Your Property
What is Subdividing
Subdividing property means dividing it into two or more parcels. This usually increases the value of the land.
- When the land is subdivided into more than one lot, each lot can then be sold separately to one or more buyers. This can be very profitable and potentially more profitable than keeping the lot as one parcel.
Why Are You Subdividing
Establishing the purpose for your subdivision is going to help guide you through the entire process. There are many reasons why a landowner might want to subdivide their property, for example:
- Family – creating an opportunity for children to enter the housing market, or for downsizing parents to live near their children and grandchildren.
- Retirement – a transition to downsizing and remaining in place.
- Financial – increasing property marketability by subdividing.
Evaluate the Risk of Subdividing Your Property
Subdividing property is common for land developers, builders, and other real estate professionals. If you are new to the process, it can be a daunting and risky endeavour if you do not first do your due diligence.
Take time upfront to research the feasibility and logistics for subdividing your property. This can potentially save you time and money when designing and applying for your subdivision, for example:
- How do the neighbouring properties compare to yours in size?
- Are there smaller properties on the street or in the neighbourhood?
- Is the neighbourhood growing with new homes being constructed?
- Are there existing municipal or city utilities on the road such as sewer, water, storm drain, gas, hydro, etc.?
Consider the Size, Shape, and Slope of Your Property
Does the property have any physical challenges? The complexities associated with subdividing a piece of land can increase if you have challenging site conditions, such as:
- Is the property irregular in shape?
- Is the land sloped, treed, or near a watercourse?
Other factors to consider that potentially complicate a subdivision include:
- Is the location in a rural area or in an urban neighbourhood?
- Does the property front on a public road?
- Do you need to build a new road, utilities and other infrastructure?
Depending on the community, the site design and layout for a subdivision could escalate into a full-scale community development project.
Part 2: Complete Your Research / Due Diligence
Check for Limiting Restrictions
Make sure there are no local or neighborhood covenants and/or development permit area restrictions that will hinder potential subdivision plans. If you are looking into buying a new property, review the title. The title will identify any covenants and easements against the property, as well as any outstanding liens or other charges against the property. Limiting restrictions might include:
- Covenants restricting the size, design, and/or building scheme of the buildings.
- Easements, either for municipal/city utilities, hydro, or neighbouring properties requiring access across your property.
- Heritage designations, which can drastically limit changes that can be made to a building and/or property (this can be a full day session, how to navigate heritage properties).
Local Area Plans can identify if a property or area has plans for growth in any way, whether adding a new lot or additional densities.
Estimate the Marketability of Your Subdivided Lot
Make sure there is a market for bare lots in your area. Research the market and surrounding properties to determine the average lot size, layout and price for lots that are being created or selling in the area.
- Connect with a real estate agent with local experience for advice on this matter. Get input from other builders who have worked in your area.
- Understand that the location of your property impacts its current value and how it might appreciate. Study the values of properties that are currently on the market in the area, and others that have sold in the last 6 – 12 months.
If you are planning to subdivide your property to build a new home, determine what is selling in the area. For example, what is the average house size, how many bedrooms and bathrooms, is there a rental suite, and what size of lot is mostly selling?
You do not want to over build for a price that’s unachievable in the area, and then be forced to sell low.
Understand Current Zoning and Other Requirements
Even if there are no covenants or other restrictions preventing you from subdividing the land, there may be local zoning, subdivision and development bylaws that affect your plans.
Every municipality and/or city has its own zoning regulations. An easy first step is to contact the municipal Planning Department to inquire about your property and the zoning. Your address will be required to pull up the information regarding your property.
The zoning bylaw will determine:
- Minimum and maximum site of the building (FAR: Floor Area Ratio or FSA: Floor Space Ratio)
- Minimum lot size
- Minimum setbacks from the property lines
- Minimum building coverage over the lot and height of buildings
Zoning and local bylaws may affect the way the property can be subdivided or used. The neighborhood might be classified for single-family residential, multi-family residential, or a mixed use such as residential plus commercial.
Confirm Your Property Can be Properly Serviced
Confirm you have access to public roads and utilities such as water, sewer and hydro. Your local municipality or city Planning Department can tell you where the utilities are located in relation to your property. There are also online mapping systems available, which also provide zoning information.
This process is sometimes referred to as site development or technical due diligence. It is the process of evaluating the availability of, and options for, key utilities and infrastructure at the building lot.
Costs for site development can add up significantly. These costs include fees and permits and will vary depending on the property. The shape and slope of your property will play an important role in how the property can be subdivided. The site’s shape and slope can restrict access, reduce the usable area, and potentially make construction difficult.
Part 3: Applying for Approval to Subdivide Property
Verify the Process
Contact the local planning, zoning and/or development office for information on their requirements and how the process works. You can also find most of this information on the municipal or city website.
Design the Subdivision
You will want to hire consultants to help with the subdivision design. First, you will need to hire a surveyor to map the property by identifying the lot boundaries, size, easements, roadways, and legal descriptions. The surveyor can assist you in identifying how the property can be divided, including the number and size of the lots. The subdivision design should also illustrate how each lot will be accessed from the road.
Second, after you have a subdivision plan from the surveyor that you are happy with, you will need the Planning Department to review your design and identify any initial concerns or comments. When speaking with the planning staff, double check the process and the documents required for an application.
After you’ve met with the Planning Department and addressed any comments or concerns regarding your plan, you can now hire a civil engineer to design the service connections to your new and existing property. You may also be required to hire a home designer and landscape designer depending on the detail the municipality or city requires for a subdivision application. You will likely want to set a pre-application meeting with the planning department, engineer, and designers to make sure all the technical details are included in the design plans.
Submission and Local Application Fees
When the plans are completed, you are now ready to submit your formal application. This will include paying for the local application fees. Application fees will vary depending on your location, but be prepared to pay as much as $5,000 – $10,000.
Your plans will be reviewed by the municipal engineering, parks, and fire departments for their comments their and approval. This process can take anywhere from a few weeks to several months depending on the municipality or city. It is not uncommon that recommendations are made for you to adjust or refine your plans.
- If necessary, meet with your team of engineers, designers, and surveyors to rework the plan to meet the recommendations.
- Track your application by communicating with the municipal staff frequently to see if they have questions or require more information.
After each department has reviewed your subdivision plan and made comments, your application will either be approved or denied. If denied, you can consider applying for variances or a rezoning of the land (which I will walk through in an upcoming post).
Once approved, the municipal planner will issue a Preliminary Lot Approval (PLA). In the PLA you will find terms and conditions that need to be completed prior to final registration of your subdivision. These terms and conditions will vary property to property.
Know the Cost of Your Subdivision
There are many variables that will influence the cost to finalize your subdivision. These could include the size of the property, its location, and the way you intend to use it.
Subdivision costs may include, but are not limited to: a land survey, engineering fees, designer and landscape fees, legal fees, application fees, site clearing, construction of services/utilities, inspection fees, and permit costs.
Once you have met the conditions of the PLA you can now legally sell and/or build on the new lot.
Congratulations!! You have just completed your first subdivision and potentially made a substantial profit from your new lot!
Proposed Site Plan Example
When I first started in real estate I made sure I had great mentors I could run my ideas past. To this day, I have a number of amazing mentors that I refer to on property, life, and business support. For those of you who might not have access to a mentor right away, you can start by reading up on the industry and identifying books of interest.
One of the first books I started with was Real Estate Investing in Canada: Creating Wealth with the ACRE System. Actually, I believe a friend bought me this book for Christmas (thanks Jess).
Topics addressed in this book:
- Real Estate investing methods and techniques for Canadians.
- Using the Property Goldmine Scorecared totell if a property is a good deal.
- A step-by-step guide to the ACRE System to help you buy investment properties.
- Basic and essential real estate investment terms and formulas.
- Identifying the different “season” in a real estate market.
- and more!