Vancouver’s push for density presents opportunities for small-time investors

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Vancouver's push for more housing could be a potentially big profit maker for small-time hobby investors.

An east-side dad who purchased a large property says that after years of arguing for a far denser development, he's got no choice but to build a luxury duplex.

Jason Del Vicario had wanted to build five two-bedroom units on his single-family lot in the Cedar Cottage neighbourhood, where he lives, at 3282 Dumfries St.

But the conditional zoning only allows for a 6,800-square-foot duplex on the property, which is 48 feet wide and 196 feet deep.

Mr. Del Vicario guesses that he will be able to sell the half-duplex for about $2-million, and he will live in the other half with his family.

The 41-year-old portfolio manager says he's frustrated that he can only maximize the potential of his oversized lot by building luxury duplexes at 3,400 square feet each. He argues that it contradicts city policies for more density in central areas, such as the plan to rezone nearby the Grandview-Woodland neighbourhood for more multifamily housing.

If he had his druthers, he'd build five units at 1,200 square feet each and sell them for about $1.2-million. In that case, however, he would not live in one of the units because it would be too small for his three children.

"It's a very unique proposition, right? Because find me a 3,000-plus-square-foot duplex with a view in East Van. It doesn't exist. And [the duplex] will be 15 feet higher than this, so the view will be awesome," Mr. Del Vicario says.

"Let me be clear: We bought the house and realized we could take advantage of the development potential, and it snowballed," he adds. "But I never sat down and said, 'How can I make more money on the side?'"

His property is in a neighbourhood with zoning that allows the contruction of duplex or multifamily homes, but only under certain circumstances. Mr. Del Vicario says he's been told his property is 450 square feet too small for multifamily housing. He's working on a design for a duplex and he'll submit a proposal to the city.

He paid a little more than $1-million for the property four years ago, which was a good deal at a time when the average 33-foot east-side lot was selling for around $900,000. He estimates construction costs at $300 a square foot, which brings total costs to around $3-million. He figures his own half-duplex will be worth $2.5-million. And he acknowledges that he will be creating housing that is in no way affordable to the average Vancouverite.

"It makes no sense," he says. "[The city] flat-out won't support [multi], even though it makes zero sense to build a 6,800-square-foot duplex."

He previously purchased and lived in another house on the east side of the city and maximized its value by adding a coach house.

"I was looking at my wife and saying, 'There's $600,000 tax-free lying in our backyard, where we play bocce ball or whatever. So we ran the numbers and it was obvious."

He is also a hobby property investor with a group of partners. They've purchased two Vancouver properties so far. They've acquired development and building permits to build a multifamily structure on a Kitsilano lot now occupied by a single-family home. In that case, they found the zoning allowed renovation for a multifamily home if the character of the house was retained. They purchased the site for $2-million and have accepted an offer of $4.1-million, although the deal has not yet closed. And they've applied to rezone a large single-family lot on Southeast Marine Drive to 18 rental units, under the city's interim rezoning policy for affordable housing.

They paid $1.7-million and Mr. Del Vicario estimates it will be worth $3.5-million to $4-million if approved for rental. He says that price would still allow a profit margin for the builder. The group doesn't take on construction.

Mr. Del Vicario spends about an hour a week searching the Multiple Listing Service for potential investments. He says they are flipping the sites, but not in the way that others merely purchase properties in Vancouver and flip them without any improvements.

"We are changing the use of the site and then flipping it. But we are buying with a view to increase the value through changing the use of the property."

If he were to practise property investment full time, he says he'd buy in Toronto, where prices have dipped, in part, he says, because of the new tax on foreign buyers. He says that market will rebound the way the Vancouver market did six months after its foreign-buyers tax was introduced.

Although prices look as if they've maxed out in Vancouver, Mr. Del Vicario says the push for densification opens up the door to tremendous potential.

"As far as I'm concerned, that's the only place left to make money in Vancouver real estate," Mr. Del Vicario says. "If you think about it, most of the people in our group, we own our own homes. So if Vancouver real estate keeps going up, we do well.

"I analyze asset prices and manage people's money and when people say, 'Vancouver is in a bubble' or 'this can't continue,' think about it … If the single-family house with a backyard is going the way of the dodo bird in Vancouver, then places are cheap here – which is a complete shift in thought," he adds.

When the city rezones areas of single-family houses to multifamily, "it will double the value of everything," Mr. Del Vicario says.

Realtor Matt Scalena says chasing after profit to be made from higher-density housing is a hobby for many rookie investor types. However, most are just trying to predict an area that will undergo rezoning for more density. They don't usually apply for a rezoning, because that takes a sophisticated level of understanding about how the city works, and what's allowed.

"The people that we're working with generally are seeing that the city has moved from talking about preservation and heritage, to talking about density and affordability – people are seeing opportunities there, around the main arteries, and those are the regular Joe types," Mr. Scalena says.

"They are people with some money who are very interested in real estate but don't do it full time, and have a little bit of capital they can throw around. They are looking at the community plans, predicting where things are going."

In other words, rezonings are the next big money-maker. But it only works if the investor purchases before the city blanket-zones areas for higher density, Mr. Del Vicario says. Once that happens, the gains are lost.

Mr. Del Vicario says higher density is needed to solve the affordability crisis. He says the "not in my backyard" people who've owned single-family homes for decades need to step aside.

"My parents' generation needs to, like, get lost. The city needs to rip the Band-Aid off."

"The other problem in this city is we build way too much housing that nobody needs," he says. "All those condos downtown are useless, the bachelors and one-bedroom apartments – that stuff is rife for speculation. They are basically a commodity, like gold or oil. So, there is separate housing for residents and housing for investors. That's a big problem."