California SB 9/ SB 10

[David Maldonado]

Hey everyone,

So Sb 9 allows homeowners to split their lots and build duplexes on each lot (total of 4 units) and it is up to the city if they want to allow ADUs as well. I'm still waiting on my city to implement a plan on how homeowners can do this. I have had success with ADUs, but I think this method will not only produce more cash flow than ADUs, but may also have a much better return when it comes to equity. It is still unclear how the properties will be zoned by the city if someone adds a duplex to their r-1 zoned home (will it stay as an r-1 or turn into an r-2?). I'm curious to see how lenders will treat these properties when it comes to lending and if appraisers will treat them as legit duplexes. I spoke with my lender and he said that as long as they are considered legit duplexes on r-2 lots, they will be treated as such. 

ADUs are great for cash flow, but not so much for equity so your money will most likely stay in the deal. The issue is that it is a hit or miss when it comes to the value it adds to the property overall (some add a lot of value, and most do not). I think utilizing SB9 can provide much more cashflow (from the additional units) and especially more equity. 

I would like to purchase an owner occupied property with at least a .5 acre lot, split the lot, build 2 duplexes, cash out refinance on both duplexes, build 2 more ADUS, then keep purchasing single families and continue building ADUs while I wait for the 3 year owner occupancy to expire and then repeat.

I know SB9 isn't favored by some people because of the fear that investors will turn single family home neighborhoods into multi families. I don't think that will happen due to the 3 year occupancy, but even so, there is nothing we can do about it so might as well capitalize on it instead of complaining. I personally think SB9 can give  the average homeowner the opportunity to build wealth and generate cash flow because the average homeowner in California cannot compete in this hot market.

Anyone here thinking about going the SB9 route? I'm curious to hear what y'all think.

[Josef Hardi]

Hey David, 

Thanks for sharing this info. I spent some time just now looking into this senate bill. I think it's a great concept! Since you mentioned Santa Clara, I went to Santa Barbara county website and it explained it quite well.

https://www.santabarbaraca.gov...

In terms of the zoning after the split, I read here: https://leginfo.legislature.ca... 

"..The subdivision of a parcel zoned for residential use, into two approximately equal parcels (lot split), as specified..."

Which makes me think at the end of the split, you will have two separate SFH parcels. But I could be wrong.

In terms of lenders, if you could get them into two separate SFH parcels, I would think that's more favorable since the interest rate for SFH is lower than duplex. Please keep us updated when you get a chance on any new findings. Thanks!