Cutting to size: understanding the challenges and risks for investors and owners

Table of contents

Split selling is a practice that consists in dividing a building into several lots, to sell them separately to different buyers. This strategy is often used to maximize the profitability of a property, by valuing it differently according to its characteristics and opportunities. However, it can also present risks for investors and owners, especially in terms of profitability, costs and responsibilities. In this article, we will explore the principles of die-cut sales, the pros and cons for different stakeholders, and the precautions to take to make a successful die-cut sales investment.

1- The principles of die-cut sales

Cutting sales are often used to value lots differently depending on their location, size, condition or profitability potential. It also makes it possible to reach a wider audience of buyers, who can acquire real estate at a lower cost than if they had to buy the entire building.

It can be carried out on old or new buildings, provided that the transformation or division works comply with current standards and urban planning regulations. It can be done by individual owners, real estate developers, or professional investors.

2- The advantages and disadvantages of cut-to-size selling for investors

The advantages

• Maximization of profitability: It allows lots to be promoted differently according to their profitability potential, by targeting different buyers according to their needs and resources.

• Portfolio diversification: Buying several lots for sale in bulk makes it possible to diversify your real estate portfolio, by distributing risks and opportunities over several properties.

• Possibility of added value on resale: Lots acquired for sale by cutting can be resold individually at prices higher than their purchase price, which makes it possible to realize a gain in value on resale.

• Rental possibility: Can be rented to tenants, which makes it possible to generate regular income and amortize the acquisition cost.

The disadvantages

• Profitability risks: Selling by cut can present risks of profitability, if lots do not sell quickly or if processing work is expensive.

• Additional costs: It may generate additional costs, such as notary fees, property taxes, condominium fees or construction costs.

• Increased responsibilities: Selling by cut involves increased responsibilities for investors, especially in terms of rental management, maintenance and repair of lots.

• Legal risks: It can present legal risks, especially in the event of disputes with buyers, tenants or co-owners.

3- The pros and cons of cut-to-order sales for homeowners

The advantages

• Possibility of quick sale: Split sales allow owners to sell their real estate quickly, without having to wait for the sale of the entire building.

• Optimal valuation of the property: The sale by cutting gives the opportunity to value the lots differently according to their characteristics, which can increase the total value of the property.

• Possibility of gradual transfer: It gives owners the opportunity to sell their property gradually, by selling the lots at their convenience.

The disadvantages

• Risk of loss of value: Selling by cut can present risks of depreciation, if the lots are sold at a price lower than the initial value of the property.

• Work costs: This type of sale can generate work costs to divide the building into several lots and to bring them up to current standards.

• Legal risks: Selling by cut can present legal risks for owners, especially in the event of disputes with buyers or co-owners.

4- Precautions to take to successfully invest in die-cut sales

Preliminary market study

It is important to carry out a preliminary study of the local real estate market, to identify opportunities for profitability and risks of loss of value.

Precise assessment of the acquisition cost

It is necessary to accurately assess the cost of acquiring lots for sale by cutting, taking into account additional costs and work costs.

Careful lot selection

Rigorously selecting the lots to be purchased for sale by cutting is essential, taking into account their condition, location, profitability potential and regulatory constraints.

Taking into account additional charges

Do not forget to take into account the additional costs associated with rental management, maintenance and repair of lots.

Compliance with urban planning rules and standards in force

To avoid legal risks and additional costs, it is imperative to respect urban planning rules and standards in force.

Conclusion

Cut-to-size selling can be an interesting strategy to maximize the profitability of a property, by valuing it differently depending on its characteristics and opportunities. However, it can also present risks for investors and owners, especially in terms of profitability, costs and responsibilities. It is therefore important to take into account the advantages and disadvantages of this strategy, and to take the necessary precautions to successfully invest in cutting sales. By following the key steps, such as the preliminary study of the market, the precise evaluation of the acquisition cost, the careful selection of lots, the consideration of additional charges and the respect of urban planning rules and current standards, investors and owners can successfully invest in selling by cut. This allows them to maximize their profitability and return on investment, while avoiding the risks and additional costs associated with this strategy.