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California Senate Bill 9 (SB 9): Converting Single Family Lots Into Rental Properties

By Matthew R. Adams on February 8, 2022
Categories: FINANCIAL PLANNING, TIPS & TRICKS

On January 1st 2022, those living on certain single family home properties across California will have access to a new multi-family planning technique. SB 9 will allow the average homeowner to turn their single-family lot into four units by splitting their lot into two and building up to three additional units.

SB 9 Lot Split Example

Say you own a one acre property in San Diego County. Here are your potential options (subject to each locality’s constraints):

  1. Split your lot into two and simply put up another single family home next door (2 units).
  2. Split the lot in two and put a duplex next door (3 units).
  3. Split the lot in two, tear down your existing home and put up two duplexes (4 units).
  4. Split the lot in two, build a granny flat on your side and another single-family home and granny flat on the other property (4 units).

For more information on SB 9 qualifications and requirements for San Diego area, click here for an application user guideopens PDF file from the San Diego County, Planning and Development Department.

Quick SB 9 Facts

  • A homeowner can apply for these lot splits. A developer cannot.
  • The homeowner would have to live in one of the units for three years.
  • Thus, a homeowner, not a residential developer could retain the legal liability for issues that arise in construction of new units.
  • Homeowner is responsible for taking building plans to a local planning commission for approval with permits
  • Local officials can’t stop a duplex from going up on a single-family lot.
  • Local government can’t require more than one off-street parking spot per unit.
  • If the property is within a half-mile of a bus stop, no street parking is required.
  • Locally designated historic districts are exempt.

Is It Worth Using SB 9 to Build a Unit on My Property?

The biggest hindrance to adding housing to your property currently is the high cost of capital to build in this hot housing market. Inflationary pressures on labor and material demand have led to skyrocketing new build prices. A 1,750 square foot single family home could cost upwards of $500,000 considering labor, materials and finishes in this market. A 900 square foot granny flat could cost over $250,000. For the average homeowner, coming up with the financing or capital to complete a project like this is certainly a detractor.

Alternatively, with the median home price in San Diego County above $800,000 at the end of 2021, building a rental unit on your property (rather than buying) could pencil out from a cash-on-cash return perspective.

If you are considering SB 9 to build on your property, please make sure you consult with a team of experts (e.g., architect, surveyor, contractor, mortgage broker, real estate broker, etc.) If you are looking for a dedicated San Diego Financial Advisor, who can assist you with comprehensive financial planning, including your housing development and investment goals, be sure to contact Dowling & Yahnke Wealth Advisors today.

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