Thinking about building 2 houses on 1 property, where do we start?

[Kyles_Mama]

So DH's parents own an old vacant house on a side street in a residential area of Toronto. The lot is approximately 50 feet wide and about 108 long. The property was recently assessed by the bank at about $480,000. Their house is very run down and not well taken care of.

DH and I think it would be wonderful if we can convince them to look into building 2 new homes on the land so that we can purchase one (for the cost of building the home) and sell the other one. His parents seemed open to the idea but a bit overwhelmed at the task. None of us have any background in real estate or construction but I think it's a good idea that would help our family be able to afford a house in the city and also make sure his parents make some profit off of the property they own.

Here is a bit more info:

- On the same street there are a number of properties that have 2 new houses built on what was one lot before
- Houses in the area probably sell for anywhere between 400,000-600,000 depending on if they're new or old (this is a very rough estimate)

So basically I'm asking for any info or advice that would help us in our quest. Please share your similar experiences as well

How much does it cost to build a home?
What are the steps we need to take to get the ball rolling?


I'm guessing we need to:

contact the city re: zoning
get some real estate people to value the property as is
find a reputable company who have experience with tearing down and building 2 homes on one lot

after that I have no idea lol, completely clueless about the financial aspect too so any input is definitely appreciated!

[secheltsaver]

Actually,your first step is figuring out if you can afford to do it.If your zoning does allow subdivision into 2 lots,there are a lot of associated costs.You will have to pay to have the lot surveyed and a subdivision plan drawn up showing the proposed new property lines.Then you will have to apply for a development permit at city hall to get permission to subdivide-this may require a public hearing,or published notices in the local paper(not always).Then you get the surveyor back to stake the new lot lines and register the subdivision with the provincial land titles office.................

[blueeyetea]

Off the top of my head, all I can think about is the financing and how much it costs to build a home. Your DH's parent's got an estimate of $480,000, but how much of that is the value of the land? You want to know if you'll be able to recoup your costs when selling the 2nd house.

For example, if the land if worth $400,000, and it costs $150,000 to build each house, the total value will go up to $700,000, split between two houses, $350,000. Add the cost of interest to your financing, and it's likely to be higher. Will you be able to find a buyer just to recoup those costs?

[Kyles_Mama]

This is all great information, exactly what I'm looking for! The ideal situation is this:

- Tear down and build 2 houses (one for us, one to sell)
- we get our house for whatever the cost of building it is (his parents won't charge us for the land or anything so we'd be looking at a 150,000 mortgage of that's what it costs to build one house)
- sell the 2nd house for around 500,000-575,000 (I think a brand new home in this area would sell for that much but I'm not positive)
- His parents get all the profit from selling the 2nd house (after the costs of building are deducted)

They already shelled out 100,000 for his sister to help her and her family buy a home and his mom said if they just sold the land they would have given us money as well so technically if we get to live there then they save that 100,000.

So ideally after all is said and done we get our house and they still make around 350,000 hopefully. Does that make sense?

Of course we'll probably sell our condo or rent it out so we'll be able to help his parents with the other costs associated with the project.

Maybe I'm being too optimistic but it seems like a great idea for everyone involved. More info/opinions are super appreciated!

I am going to try to find out how much $ similar new houses on the street sold for but I don't know where to find that info. Is it weird to just ask the people who live there? I'm not shy lol

[Ciel]

Probably have to go through severance notice (whatever that costs you in legal, filing costs) and informing anyone within 400 feet or metres of the property boundaries-hope you don`t get any pushback but if never know if you do, there could be more meetings and costs coming.
Then need to apply for demolition permit. Get contractor to take down building-need to determine who gets salvage value of any materials, etc. Have to consider fencing off property (rental fences) during demolition so no stray curious human goes exploring outside of work hours.
Quite certain you need plans before you can apply for building permit, at which time either you or the contractor are listing as taking out the permit. Now, say it was possible to build a new home on severed lot before old house on other lot is taken down. You would have a timeframe in which to get new home done so that old house will get knocked down in timely fashion.
Then you assume all the desired materials are available or you can buy them as needed and that the various trades will be able to more or less be around when their work has to be done. Allow for rain days...and time for various building inspections.

Where are the folks going to live if their home gets knocked down prior to either new house is built...

Glad you asked the questions-you don`t want to end up like the couple who built an addition without permits and got judgment recently ordering family to knock down the addition after years passed.
http://www.toronto.ca/building/index.htm
Oh, almost forgot-there could be various utility costs if additional water or sewer or hydro connections are needed.

[blueeyetea]

Here are other thoughts:

* if they give you the land to build your house, it complicates things, a lot, so a visit to a real estate lawyer to see what the ramifications are is a good idea. Than you have to look at the tax implications. One, land transfer tax: you'll have to pay the tax based on the market value of the land. Two: there's no transfer of money to get the land, but the land is worth money, so whoever receives it might be on the hook for income tax on the value of the land. If the land is valued at over $200K, that's 60%, i.e $140,000. There might also be tax implications for the parents who own the land. If they were selling the land, it would be at market price, and they would likely be paying tax on the capital gains because the property went up in value since they bought it. That they are giving the land to a relative might be considered tax evasion, so they might also be on the hook for income tax as well. They can't use the argument that they sold the land at a loss (and therefore, shouldn't be paying tax on it), because they wouldn't if they were dealing with a stranger. In this light, I'm not sure you'd be that much ahead.

* the land will probably need to be in your name for a bank to approve a loan.

* selling the 2nd house for $500,000 is very optimistic in my view. You're assuming that someone will buy the 2nd house on a lot that's half the size than the neighbors and pay the same price as what the neighbor's property is worth. The land before it's split is worth, for example, $400,000, so half the lot is automatically worth $200,000. Add to that the cost of building the house, $150,000 and you have a house that's worth $350,000. Why would someone pay, $500,000, i.e. $150,000 more? The value held in housing is in the land, and the house is worth the cost of rebuilding it. On top of that, you're counting that the value of the houses will remain the same or go up when the house is finished. With the constant predictions these days that interests will go up, house values will likely come down.

* Try and figure out all the costs involved up front: lawyer fees, property taxes, mortgage interest, contingency fund, permits, and possible, time off work to deal with all of this. This will be added to the cost of building those houses.

* selling your condo or renting it out: where will you live? If it's paid, it's an asset that be used as collateral against the mortgage of the house you're building. If it isn't, it's another liability that might influence you getting a loan to build a house, or at least, make it more expensive to get. Either way, whether you keep it or not, there are costs associated with this as well.

* a real estate agent can look up their databases the prices at which the houses were sold in the neighborhood. Unfortunately, they'll only give out that info if you give them your business.

This is all great information, exactly what I'm looking for! The ideal situation is this:

- Tear down and build 2 houses (one for us, one to sell)
- we get our house for whatever the cost of building it is (his parents won't charge us for the land or anything so we'd be looking at a 150,000 mortgage of that's what it costs to build one house)
- sell the 2nd house for around 500,000-575,000 (I think a brand new home in this area would sell for that much but I'm not positive)
- His parents get all the profit from selling the 2nd house (after the costs of building are deducted)

They already shelled out 100,000 for his sister to help her and her family buy a home and his mom said if they just sold the land they would have given us money as well so technically if we get to live there then they save that 100,000.

So ideally after all is said and done we get our house and they still make around 350,000 hopefully. Does that make sense?

Of course we'll probably sell our condo or rent it out so we'll be able to help his parents with the other costs associated with the project.

Maybe I'm being too optimistic but it seems like a great idea for everyone involved. More info/opinions are super appreciated!

I am going to try to find out how much $ similar new houses on the street sold for but I don't know where to find that info. Is it weird to just ask the people who live there? I'm not shy lol

[blueeyetea]

Probably have to go through severance notice (whatever that costs you in legal, filing costs) and informing anyone within 400 feet or metres of the property boundaries-hope you don`t get any pushback but if never know if you do, there could be more meetings and costs coming.

That's a good point. One on my neighbors had to go around and get signatures from everyone on the street as proof that they agreed to how she was renovating her house. Once she had that in hand, she then had to go in front of a special committee at the city to get authorization to go ahead.

[Kyles_Mama]

Holy crap, I didn't realize there were so many details involved! You have all been so helpful, thank you. I'm going to try to sort all the info out and get it down in a list format. And then do some research and list the contact info for all the people/companies we need to involve.

As far as the financial stuff goes, who do we talk to at the bank? I'm assuming you show them your plans with all your approvals and then you get some kind of builder's mortgage to pay for the construction?

And how do you find a reputable contractor? Is there a good website where you can find reviews? Do some contractors specialize in this type of project?

Also, I heard somewhere that if you can salvage some part of the old house structure and use it to build off of then you save money in taxes or something?

To answer some of the above poster's questions: DH's parents live in a different house that they own so the vacant one is just full of their stuff that we'd need to move out. And we would stay in our condo until our new house was ready. We're still paying a mortgage on it though and it's not due to be paid off for another 6 years. We bought it 2.5 years ago and have been paying it off pretty aggressively so there are options there, whether we decide to just lessen our mortgage payments and apply the difference to a builder's mortgage or can't you use equity or something from the portion that you've already paid off?

And what's bridge financing all about? I've heard the term but I don't really know what it means..

Oh and what if they sell us the land but for super cheap? Does that get around the tax issue? and who would be best to talk to about these types of things? A lawyer?

It seems like such a daunting task :-S We really love that area though and if we get a house that's brand new and just the way we want it that would be a dream come true.

It's scary to think about all the upfront costs though and the potential that it could be money wasted if it doesn't work out. Knowledge is power though so I'll try to learn everything I can before we have to shell out any money.

[blueeyetea]

Getting "Building Your Own Home for Dummies" might be a worthwhile investment.

For the financials, I would definitely talk to a bank for fact finding on what you need to qualify, what are the rules for building, what papers you need, etc. I Definitely also have a look at the CMHC site. Having said all that, in the end, go to a mortgage broker to get the best interest rate.

Bridge financing is a loan to help you cover two mortgages in this context. Some people will find themselves in the situation that they've bought a home but haven't sold the one they live in. They'll get bridge financing to pay for the mortgage until one of the houses is sold.

Word of mouth is the best way to find a good contractor, is what I'm hearing, but I have no experience. If you hire an architect for your plans, they probably have a list of people they like to work with.

Your condo will be used a collateral against the new loan, that's a given.

The tax issue is all about what the CRA would think if anyone got audited. You'd have to talk to a tax accountant or lawyer for this because I'm not an expert. Even CRA would be able to give you basic info. Even if they sell you the land super cheap, it's still a preferential treatment that a stranger wouldn't get. If half the lot is worth $200,000, and they sell it to you for $150,000, the $50K difference might not be that big an issue as if they were selling it to you for $20,000. From an investigator's point of view, you're evading paying tax on a valuable gift, and the parents are avoiding paying tax on capital gains. That's why it's not an issue if you're making monthly payments on a loan. You've already paid the tax on the dollars you're using to reimburse the loan.

One way around might be to have your spouse's name put to the deed, and when the parents die, the land is automatically passed on to you, but then inheritance issues may come up if it's contested by your husband's siblings. You'd definitely need a lawyer for this.

From my point of view, it seems like a lot of work for something you don't know if you'll be able to achieve (splitting the land in 2). It might be a good idea to come up with dollar figure for the upfront costs that's you're willing to lose if this project doesn't go ahead.

[josephhinds]

I think $480,000 is enough, what you say?

[chcruz829]

Probably have to go through severance notice (whatever that costs you in legal, filing costs) and informing anyone within 400 feet or metres of the property boundaries-hope you don`t get any pushback but if never know if you do, there could be more meetings and costs coming.
Then need to apply for demolition permit. Get contractor to take down building-need to determine who gets salvage value of any materials, etc. Have to consider fencing off property (rental fences) during demolition so no stray curious human goes exploring outside of work hours.
Quite certain you need plans before you can apply for building permit, at which time either you or the contractor are listing as taking out the permit. Now, say it was possible to build a new home on severed lot before old house on other lot is taken down. You would have a timeframe in which to get new home done so that old house will get knocked down in timely fashion.
Then you assume all the desired materials are available or you can buy them as needed and that the various trades will be able to more or less be around when their work has to be done. Allow for rain days...and time for various building inspections.

Where are the folks going to live if their home gets knocked down prior to either new house is built...

Glad you asked the questions-you don`t want to end up like the couple who built an addition without permits and got judgment recently ordering family to knock down the addition after years passed.
http://www.toronto.ca/building/index.htm
Oh, almost forgot-there could be various utility costs if additional water or sewer or hydro connections are needed.

Agree with all of this!

[marksimon112]

48K will be more than enough!

[amelietremblay6]

I think $480,000 is enough, what you say?

How did you calculate this amount?

[tobiwobi]

what part of Toronto are newly built detached houses going for 500K? Your plan is great, good luck to you. There are lots being severed and two skinny houses built and sold for 700K each easy in Toronto. I'd do it sooner than later because the housing market is easing a little bit. All the best.