When it comes to SB 9, sometimes a lot split is the better choice.

Senate Bill 9 has been getting a lot of attention since it was first proposed, and even more since it was signed into law by Governor Newsom on January 1, 2022. The new California state law enables homeowners in urbanized areas to split their single family residential lot and/or build an additional primary unit or duplex. So far, most of the media attention has been focused on the second of these two provisions (even to the extent that SB 9 is nicknamed the “duplex law”).

Although it’s not getting as much attention as duplex development, the urban lot split is a great way for property owners to take advantage of the new law. For many homeowners, subdividing their property and selling the newly created lot is actually a better choice than building a duplex. The following blog post will tell you why.

1. The process is quicker

Most bureaucracies aren’t known for their speediness, and even a lot split application can sometimes take longer than you'd expect for an approval. But despite the typical sluggishness of city planning departments, lot splits usually only take a few months from application to completion. When you build a second primary unit or duplex, construction can take anywhere from 6 months to a year or longer!

2. You get paid sooner

Not only is the process quicker, but you also see the profits faster.

If you develop your property by adding a second unit, you’ll need to wait until after construction is finished and the property is rented or sold before money starts coming in.

When you split off and sell a portion of your lot, you get paid right away. And depending on the size of the new parcel of land and lot prices in your area, you stand to make hundreds of thousands of dollars from the sale.

3. It’s much less expensive

Splitting your lot with SB 9 isn’t free; most cities require lot split applicants to pay an application processing fee, and others require an additional fee for recording the new parcel map. These costs can range from a few hundred to a few thousands dollars, depending on your municipality’s requirements.

The application fees associated with a two-unit development are often much higher, and if you choose to split your lot and build additional units, you’ll have to pay fees for both provisions of the law. And when a homeowner pursues a two-unit development with SB 9, the permitting costs are just the beginning. Home construction is the expensive part of the equation.

Generally, the cost to build a home in California is about $400 per square foot. Even if you’re only building an 800 square foot unit, it’ll come with a price tag of over $300,000. And if your floor plan is larger or you want high-end materials, the costs quickly start to pile up.

Many homeowners don’t have several hundred thousands dollars in the bank, and therefore must rely on financing or go into debt to pay for construction. Because SB 9 lot split fees are relatively low, many applicants are able to pay for them without outside assistance.

4. It’s much simpler

Different cities have different application processes for lot splits, but even the most involved lot split applications are much simpler than the average two-unit development application.

With the urban lot split process, the application and tentative parcel map are submitted and approved and the subdivision is recorded. That’s the full extent of the process.

When you build a second unit or duplex, there are a number of forms, checklists, and other bureaucratic requirements that must be submitted to complete the permit application. Once the permits are obtained, you’ll need to hire and coordinate an architect, surveyors, contractors, and subcontractors. If you have a full-time job, a family, or other commitments, it can be quite exhausting to manage.

Of course you can hire a construction manager to coordinate all of the different workers, but that will add an additional cost to the project.

5. It won’t increase your yearly taxes

Adding a second unit to your lot will increase your property’s value and trigger a tax reevaluation. While the property value increase is great, the property tax increase isn’t.

Splitting your lot won’t raise your taxes, and you might even be able to lower your annual tax bill as a result! You can request a reevaluation once your lot is split to see how much you’ll owe.

6. It’s still a great return on investment

It's true, you might make more money by developing the new lot and selling the property with a brand-new single family home or duplex on it. But since construction costs so much, the return on investment is comparable when you just split and sell.

Some potential applicants are concerned that splitting their lot with SB 9 will have a negative impact on their property value. While splitting your lot and selling a portion of your backyard will likely cause your property value to dip, it’s not substantial.

The square footage of your house and the neighborhood’s average price per square foot have more influence on your property value than lot size. Land surveyors predict that a 60/40 lot split will only decrease the larger property’s value by about 10%.

Hack: use the money you get from the sale of the new lot to build an ADU! Accessory dwelling units increase property value and can provide a source of perpetual income if you choose to rent it out.

Conclusion

Lot splitting holds so much potential for homeowners who lack the resources or desire to coordinate and fund the construction of a new housing development, but still want to take advantage of SB 9. While many homeowners will choose to keep their backyards intact, others feel it’s a worthy trade-off to make a substantial sum of money within a few months while adding desperately needed new homes.

Senate Bill 9 is one of many tools that has the power to help end the housing crisis by increasing housing stock. The naturally affordable housing that SB 9 will create can open the door to home ownership and intergenerational wealth for those who’ve been previously priced out of California’s cutthroat housing market.

If you’re interested in splitting your lot, search your address on Homestead’s free SB 9 eligibility search tool to see if it qualifies. Visit our SB 9 City Guides hub to learn about guidelines specific to your city, and visit Homestead's SB 9 Library for helpful articles on SB 9 financing, lot evaluation, and in-depth breakdowns of local ordinances.