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How Realtors Use SB-9 to get more listings while enabling homeowners to make more money in Los Angeles

SB-9 has created new profit opportunities for homeowners in Los Angeles by allowing lot splits and additional residential units in single-family zones. Realtors educate the homeowners about these new opportunities and help them sell the new units or the new vacant parcels resulting from splitting the lot per SB-9. Homeowners capitalize on these changes allowed by SB-9 in different ways: split the lot, add 1-2 residential units to sell; pre-selling a subdivided lot without units for a quicker profit; or build a rental unit for long-term income. While each option comes with its own investment requirements and timeline, SB-9 provides a path for Realtors to get more listings and attract more buyers interested in purchasing vacant lots to build their dream home.

California's Senate Bill 9, also known as SB-9, has opened up new opportunities for homeowners, especially those with underutilized properties. SB-9 allows property owners to split the lot and build up to 2 units per lot, or build 2 units + 1 ADU. This applies only to properties located in single-family zones. In other words, on properties where you used to be allowed to have only one unit, now you can have up to four units.

Homeowners can capitalize on these changes in different ways: developing and selling a new property for a high return, pre-selling a subdivided lot for a quicker profit, or building a rental unit for long-term income. While each option comes with its own investment requirements and timeline, SB-9 provides a path for property owners to maximize their land’s value and generate income.

These options opened a variety of ways to make profits. The most popular option for homeowners is lot split.

What is a Lot Split per SB-9?

A lot split is the process of dividing a property into two separate parcels, allowed only in zones designated for single-family homes. The minimum lot size for the lot is 2,400 sq. ft.

Options for homeowners to make money with SB-9

Sell a Lot after Development

One way to profit from a lot split is by developing the new lot and selling it as a newly constructed home or duplex. This approach provides the opportunity for the most profit once the development is complete.

Advantage

Increase Earning Opportunities: Selling a developed property can generate higher returns compared to selling a vacant lot.

Generate Income from a Lot: Turn an underused lot into a valuable asset by building a market-ready single-family home or a duplex.

Disadvantage

High Investment Requirements: This strategy requires an upfront investment between $600,000 to $1,000,000 + depending on the location.

Extended Development Timeline: Expect around 2 years for lot split, construction, approvals, and sale.

Case Study

A homeowner in Los Angeles subdivides their 8,000 sq. ft. lot and builds a contemporary duplex on the new parcel. After investing $3,500,000, they sell the newly developed property for $9 million, achieving an ROI of 157% before taxes and other costs. This return far exceeds the initial land value, making the investment highly rewarding.

This strategy is excellent for those willing to invest time and capital in exchange for a potentially large payout.

Pre-Selling a Lot for Instant Profit

If you're looking for a quicker and less capital-intensive way to profit, pre-selling your new lot can be a smart move. This method involves selling the newly subdivided parcel without developing it.

Advantage

Guaranteed Sale Price: Pre-selling secures a fixed sale price, offering stability and instant financial returns.

No Investment Required: You don't need to spend money on construction, labor, permits, or development.

Disadvantage

Delayed Payment: Although you avoid development expenses, the sale process typically takes more than half a year.

Case Study

A homeowner in Los Angeles subdivides their 10,500 sq. ft. lot and lists the newly created parcel for sale at $800,000. With no construction costs, they find a buyer within 3 months and close the sale 5 months later. The homeowner walks away with a substantial profit while avoiding the hassle of development.

This approach is perfect for those who want a fast and hassle-free return.

Build on a Lot for Long-Term Value

Another profitable way to leverage an SB-9 lot split is by retaining the new lot and constructing a home or duplex on it. This strategy can serve as a long-term investment, offering rental income or additional space for family use.

Advantage

Boost Your Net Worth: Transforming one property into two separate lots increases the overall value of your real estate holdings.

Generate Rental Income: Building a new rental unit allows you to secure a steady income stream over time.

Family Expansion: If your family needs more space, the new property can provide a convenient solution without requiring relocation.

Disadvantage

High Investment Requirements: This strategy requires a $600,000 to $1,000,000 + investment depending on the location.

Extended Development Timeline: Expect around 2 years for construction, approvals, and sale.

Case Study

A homeowner in Los Angeles owns a 10,000-square-foot property and subdivides it, creating a 5,000-square-foot parcel. They build a 3-bedroom rental unit on the new lot, investing $3,000,000 in the project. The property is then rented for $5,000 per month, providing steady income that covers financing costs while building long-term equity.

This option is ideal for those looking to build long-term wealth and increase property value while gaining a potential passive income stream.

By carefully weighing these strategies, investors and developers can select the option that aligns with their financial goals and timelines, making the most of California's SB-9 lot split opportunities.

See how much value your property has if developed per SB-9

If you want to learn more about SB-9 and how attractive it makes properties located in single-family zoning in Los Angeles, check out All You Need to Know About Building on Properties in Los Angeles City Under SB-9. You'll find useful information about development opportunities and regulations.