How to Buy Property for SB 9 Development

Samuel Schneider
.
January 3, 2022
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5
minute read
SB9
Finance
How to Buy Property for SB 9 Development

What to look for when buying property for SB 9 development

Updated 05.13.22

California's Senate Bill 9 opens up many exciting possibilities for homeowners looking to develop their property. If you've been thinking about investing in real estate, it's worth taking SB 9 potential into consideration when buying new property. The following guide will give you the tools to evaluate a property's SB 9 potential: basic legal requirements, what to look for, what to avoid, and next steps to take. With our help, you can find the best properties for SB 9 development. Let's get started!

What is SB 9?

California Senate Bill 9 is a new law that allows homeowners in urban single-family neighborhoods to subdivide their lot and build additional housing units on each parcel. Many types of housing are allowed, including single-family homes, duplexes, and accessory dwelling units (ADUs). The goal of the new law is to increase housing supply and diversify the types of housing available in a given area to help mitigate California's housing crisis.

SB 9 Legal Basics

First, it's important to know the basic legal requirements under the state law. Keep in mind that individual cities have the power to impose further limitations and requirements, and these city ordinances may still be under development. Search your city on Homestead's SB 9 City Guides for up-to-date information on SB 9 guidelines in your area.

Eligibility requirements

With that in mind, the two major requirements for SB 9 eligibility under the state law are as follows:

  1. The property in question must be located within an urban area or cluster, as defined by the U.S. Census Bureau
  2. The property in question must be located within a single-family residential zone

Disqualifying factors

There are also several disqualifying factors that make properties ineligible for development under SB 9.

Disqualifying factors include:

Zones marked with an asterisk may be eligible, provided your jurisdiction allows SB 9 development in these zones and all applicable safety precautions are taken during the building process. Click on the links above to learn more about SB 9 development within these unique areas.

To determine whether your property meets the eligibility requirements for development under SB 9, use our free search tool.

Occupancy restrictions

In order to maintain affordable housing options and avoid displacement, there are guidelines and restrictions on occupancy and rental history for SB 9 projects.

These include:

  • Only residential units may be built
  • SB 9 subdivision provision requires that the owner occupy one of the two lots as their primary residence for at least 3 years following the lot split
  • SB 9 units may NOT be used as short-term rentals (all residency must be at least 30 days)

A property cannot require the demolition or alteration (defined as changing 25% or more of exterior structure walls) of the following:

  • Affordable housing for moderate, low, or very low income families or individuals
  • Rent or price controlled housing
  • Housing occupied by a tenant within the last 3 years

To learn more, read our blog post on SB 9 occupancy requirements.

Ideal SB 9 Lot Features

Once you've determined whether or not your new property is in a legally acceptable location for SB 9 development, you'll want to assess the lot for SB 9 development potential.

One of the most exciting features of SB 9 is the ability for property owners to split their lot and sell off or develop the second lot. Not all properties are eligible for lot splitting, however, and even fewer are ideal candidates for development.

Here's a list of questions to evaluate a lot's SB 9 potential:

1. How big is the lot?

A large house on a large lot with a green lawn and a few trees.

When performing a lot split under SB 9, each lot must retain at least 40% of the lot's original size. That means the split can range from 50/50 to 60/40. Each lot must also be at least 1,200 square feet.

Properties are best suited for an SB 9 urban lot split when situated on large lots—ideally over 7,500 square feet. This will allow plenty of room for a comfortably sized unit and some outdoor space for each unit. In most cities, however, lots as small as 2,400 square feet are eligible for subdivision.

2. How level is the lot?

Green grassy hill in front of a blue sky with white clouds.

SB 9 development works best with lots that are as level as possible, with no discernible grade or slope. This is mostly because construction expenses go up considerably when you add the costs for grading and leveling the land. Certain cities also have limitations on how much grading is allowed on a lot, so be sure to read your jurisdiction's SB 9 ordinance.

3. How big is the existing house and where is it located on the lot?

A grey ranch style house positioned near the back of a lot.

Properties that are ideal for SB 9 development feature smaller houses (in comparison to their lot size) that are situated towards the front or back of the lot.

Remember, the maximum allowable lot split is 60-40. If the existing house is located in the center of the property, or if it takes up more than 30-40% of the lot, it might need to be demolished in order to utilize an SB 9 lot split.

Note: Although some cities place limitations on allowable lot shapes, many allow "flag" lots or other unusual shapes. These alternative configurations can be used to increase square footage on the smaller lot. However, large lots with proportionately smaller houses situated close to the property line are the best candidates for SB 9 development.

4. Is the property on an alley or corner?

A white suburan house with a gry roof on a large corner lot, with other white and grey houses around it.

Access to a second right-of-way or alley is ideal because it easily allows both lots to achieve direct street access. There are other options for adding a second entrance and right-of-way, but properties already located on a corner or alley make the process simpler and more convenient.

Note: Some cities do not allow SB 9 units to use an alley for frontage, so check with your local planning department to be sure.

5. Is it on a sewer or septic system?

Paint-chipped water drain cover on a cracked sidewalk.

Though not necessarily a deal-breaker, properties with onsite wastewater treatment (aka a septic system) are a little more complicated than those on the public sewer system. For SB 9 development, septic systems require a passing percolation test completed within the last 5 years, or a recertified test within the last 10 years. The tests cost about $1,300 on average, and a failed percolation test will prohibit any construction on the property. Furthermore, some cities require that all SB 9 units must connect to the public sewer.

6. Is it part of an HOA?

Small-scale model of McMansions on a cul-de-sac.

Homeowners associations (HOAs) may have the power to limit or even veto SB 9 developments. HOAs that allow SB 9 projects may still require adherence to strict standards regarding a unit’s size, height, lot placement, and even paint color (among countless other factors). To ensure the highest level of personal choice for your project, properties that are not subject to homeowners associations are ideal.

Read our blog post on HOAs and their impact on SB 9 development for more information.

Looking to buy?

Buy with Homestead is a product coming in 2022-- it allows you to buy a house for less if it's on a SB 9 Eligible property. See more about the program here.