The following is an abbreviated timeline of my first development project. There are a lot of details and side stories that have been omitted, but this gives you a good idea of what you’ll need to go through if you want to get into land development.

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My background:

Real estate broker since 1983, graduate from University of Toronto Geography/Planning.

Real estate sales and marketing, eventually specializing in residential land acquisitions and new house construction. Opened Carriage House in 1993. Never looked back.

Began assisting developers and builders with permit applications, committee of adjustments, minor variance applications. Helped retain servicing contacts, trades and suppliers, including attending meetings at the town, region and various environmental authorities. Over the course of time you can’t help but build a network and experience. Some good, some not so good. Live and learn, fall down, get up, dust off and get back at it. Always for someone else.

Decision time, leap of faith:

Tired of watching from the sidelines. If I can do this for them, I can do it for myself. Have my son join me, get him to open a limited corporation online. Note: Let’s keep everything close to home, family only. Going to need some capital, but don’t want partners. Credit line, a little personal cash, new chequing account has $15,000 overdraft and two credit cards with $10,000 each. Let’s call this the OPM principle (other people’s money, mainly the bank).

The search:

Easier said than done. Property has to be inside a settlement boundary, sufficiently big enough to support development and most importantly have the right zoning. A property can be across the street. Without the zoning, forget it. Oh, and the price – your equation works backwards from what an ultimate buyer will pay for a house on a lot, in that specific location. After costs you will be left with a value you can afford to pay. Strictly business, no emotion.

Now a willing seller. Please note, being in the business there are open doors, or partially opened doors, and plenty of tools to search and capture. From MLS to registry office, reverse look-ups, corporation searches and of course good old-fashioned door knocking. Keep quiet, secrecy is key. There are people out there who will try and stop you or take the opportunity away.

Eureka:

Working on a project in a small settlement, I noticed a vacant lot. Check the zoning, yup it could work. With the existing bylaws it could yield four separate building lots. Fairly good location, municipal water, natural gas, telephone, hydro, but no sanitary (individual septic), storm water to the ditches on the street. Only problem: it’s not on MLS or for sale. Get to work and go door knocking.

Contacted one of the two owners. Being a broker, full disclosure from the very beginning is/was an absolute must. W5: who, what, where, when and why. All up front, this is what I want to do. They were willing, but the price…they want $600,000 I’m figuring top-end $450,000. We were both dreaming, but they less so than I.

The Contract:

Asking: $600,000. Offer: $450,000

Agreement: $575,000, no commission

$125,000 down payment, VTB one-year interest only, quarterly payments, conditional for 60 days on due diligence, closing 30 days after due diligence. This better work.

Due diligence:

Already know most of the zoning bylaws, setbacks, etc., but need a preliminary meeting at the town with concept plan in hand. Check with the region while waiting for pre-lim at the town, check for environmental concerns, utilities and availability, get surveyor and engineer ready, speak to a couple of builders to see if there is any interest, even potential homebuyers. Tedious, but not a tremendous amount of effort.

Pre-lim reveals a kick in the gut. You can go through variance process for three lots, but if you want the fourth, it’s a full-scale plan of subdivision. That’s at least $350,000 as opposed to $50,000 and a minimum two years (if you’re lucky). The numbers change, a lot, but it still looks good. Base everything on three lots, fire the starter’s pistol at the surveyor/engineer and get this on the town docket ASAP. The list of conditions from the town to get the severance is not onerous but I’ve only got 60 days, the town is not lenient, miss a cut off and it’s another 30 days.

List of conditions:

You can do this completely on your own or hire people. My suggestion is, get your hands dirty and do the work you can. There will be an appreciation later that only experience can provide.

Start checking off the boxes, from a full site plan showing building envelope, setbacks, driveway, etc. to a full landscape plan showing drainage, septic location etc. It’s basically three surveys built into one. Snag: there’s a minimum frontage that can’t be met on a lot because of the “daylight triangle”. The solution is to add a minor variance application into the mix as part of the entire application.

Concurrently clean the site, get an appraisal based on what a building lot would sell for times three (park dedication fees to be paid, five per cent of the appraised value), signs to go up, lots of running around. Snag 2: delays in obtaining site plan and landscape plan from the surveyor cause a missed deadline. Now 30 days behind. Ask for an extension from the seller. If he says no it’s a gamble. Obtain the extension, book the date with the town.

Council meeting:

Part of the process includes informing all local residents and allowing their input. Several documents sent in from concerned residents who object to the application(s). During the meeting there was an agitated neighbour fiercely trying to block the motion. Fortunately, the town does not accept ideas that you don’t want or like development, not in my backyard. If the development adheres to planning policy and building code guidelines, objections fall on deaf ears.

However, if an individual wishes to delay and obstruct, they can appeal to the Ontario Municipal Board. Council unanimously approves the Consent Application and Minor Variance, subject to a 20-day appeal period. It can be quite stressful waiting for that last day as objection or appeal can be right up to close of business on the 20th day. Fortunately, luckily as well, no appeals. Contact seller, waive conditions, contact solicitor and instruct him to get ready to close.

In the background, I have leaked out to builders and agents that there will be three building lots available shortly. Good interest, but the price…. everybody wants a deal. Don’t panic. Tell yourself that every morning.

The negotiation: On MLS for $339,900 each, receive multiple offers over 10 days. Was prepared to take anything over $300,000. The best offer (based on money, closing, commission, conditions) came in at $315,000. I countered at $325,000 with this kick; I will give a VTB for 50 per cent of the value, principal-only payments of $1,500 per month (each lot) for one year. Blinded by the notion of a no-interest mortgage, I gained $30,000, but had to wait 12 months to fully cash in.

Timing:

As previously mentioned, finding the right property can take weeks to years. For our purposes we will start from the date of investigation, July 2015. Two weeks to track down, meet with seller, negotiate a contract and settle on terms. August 2015, four weeks for surveyor and engineer, but because of the delay, tack on 30 days. September 2015, COA meeting and acceptance. October 2015, appeal period over. November 2015, close on the property. December 2015, property goes on MLS, receive offer, sold in 10 days. January 2016, close with new buyer, pay off my VTB, register new VTB. Go from paying to being paid. Oh, what a relief it is. A total of five months, only three months of carrying costs.

Simple accounting:

Paid:          $575,000

Resold:      $975,000

Bills:          $100,000 +/-

Net:            $300,000

Bills include everything from interest on the credit line, park dedication fees, surveyor, gas, bottle of 20-year-old Glen Devron Scotch (our celebratory libation for each level of accomplishment), to a shareholders annual meeting in Puerto Vallarta (although there are only two shareholders, we needed a secretary treasurer and admin assistant to join), and anything in between that remotely contributed towards development.

Now what do I do with myself? Oh yeah, get off your lazy butt and find another one. Gotta love capitalism. Stay tuned for another that’s ongoing. Huge changes. Absolutely huge…

5 COMMENTS

  1. Thank you Derrik. Appreciate you bringing this niche market to the forefront for those of us on the sidelines.

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