Duplex Build Out in California

[Flora Nguyen]

Hello All!

I’m looking to purchase land and build out a duplex in my hometown in Garden Grove, California. Not too sure the pros and cons of this and expected timeline /cost. Any tips/advice would be greatly appreciated!!

[Sean Jones]

Hi Flora,

Ground up development can be very complex, but also very rewarding when done correctly. Here are some things to consider:

Find land that is already zoned for your intended use. This sounds simple, but is hugely important as you do not want to try to go through a rezoning process, just not worth the time, effort and cost on a deal of this size. As mentioned above, a local broker who sells land for development would be very helpful as they should know the local jurisdiction's regulations. General contractors may have some knowledge, but it would be more limited to building codes, not approvals for development.

In terms of cost consider the following: 

Land - apart from zoning, is it flat, sloped? Does it have utilities (water, sewer, power) close by or stubbed to the lot?

Consultants: You will need to hire an architect, civil engineer, structural engineer, and likely some other specialized consultants. The architect should have contacts to help with this if they are experienced in this product type.

Fees: Consult your local jurisdiction to find out what the development impact fees and permit fees for your project will be. This can range $20K - $50K+ per unit depending on the jurisdiction. There will also be fees associated with the review of your plans at the city. There may also be separate agencies that need to review and approve you plans such as a water district or the county, which will also have their own fees.

Construction Loan: Will you or your investors qualify for a construction loan? Lenders tend to want to lend to people with some experience in the project type being built. Construction loans are also more expensive than traditional home mortgages. 

Insurance: As a developer of new construction, you will have construction defect liability for 10 years, meaning if there are construction defects that arise during the 10-year period you will need to fix them. Will the contractor be around to fix mistakes and will their insurance cover it? This is not as important when building rental product vs. for sale units, but still something to consider.

Construction costs: To get an accurate bid for the project, you will have to have a decent set of plans prepared by the above mentioned consultants. Otherwise, a contractor will just be estimating and the cost could end up being significantly different (usually more) when they get the plans. Architects are not known for designing plans that consider cost over aesthetics. This means to get an accurate construction cost estimate you will have to spend significant money on the consultants to develop the plans.

If you can buy the land and know you can build the project for much less than you can just buy a duplex, and want to go through the above process, then go for it! In my experience, it's always more expensive than you think.

There is more to it, but that is a good overview, I think. I hope that helps answer your questions.