Build an ADU or subdivide property to build a 2nd home?

[Ronak Patel]

Hi All -

The home I live in is on a 10K sq ft lot in a suburban LA neighborhood around 45 mins north from Santa Monica. There used to be two homes on the lot. I was told that a previous owner had combined the two lots many years ago for some reason. I looked at an old parcel map of the neighborhood in 1986 and indeed there are two separate lots of land. The title policy of the home specifies that I am the owner of the two lots.

The first house on the next street valued at $650K (2bed/2 bath & 1,400 sq ft) is a good proxy of what I can build with the land area that I have given if there was a home there, it would also be the first home my the street. The empty land to the side of my house has enough room to build a 3 bed 2 bath home.

I am now deciding whether to build an ADU or a separate home entirely.

ADUs in my city can only be 1,000sq ft and single story. If I were to subdivide the land, then I could build a two story home, which makes better use of the land, could garner more rental income, and if I were to ever sell, I can sell one of the homes at a time. If I build an ADU, both the main home and ADU are required to be sold together.

If a build a 3 bed 2 bath ADU, it will cost me ~$300K and I don't think my home value would go up by ~$300K. On the other hand, if I build a 3 bed 2 bath separate home, it might cost ~$350K to $400K. If I was looking to buy an equivalent 3 bed 2 bath home in my neighborhood, it would cost between $650K-$800K.

I am leaning towards subdividing the land. The goal is to eventually rent out both the main home and the new home that would be built. Anything I am overlooking?

• I know that once I subdivide the land, both lots and any structures will need to be brought up to the current laws/requirements.
  
• The lot where the new home would go has two lateral sewer lines already. Don't know if they are functioning yet
  
• I already have a land survey of the area and no easements that are indicating it would not be possible to build a second home
  
• No oak trees in the side yard lol
  
• There's a strong rental and buyer demand in the area. 5 homes in the neighborhood were on the market recently for a few weeks before they sold.