How to Buy Property for SB 9 Development

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

What to look for when buying property for SB 9 development

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 in an effort 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. Refer to Homestead's SB 9 Implementation Database for up-to-date information about current SB 9 ordinances 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 US 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:

  • Location within high or very high fire severity zones, delineated earthquake fault zones, flood hazard areas, or hazardous waste sites
  • Land designated for conservation, land under conservation species, or protected species habitats
  • Location within an historic district or listed as an historic landmark (unless allowed under local ordinance)
  • Location within prime farmland, or wetlands
  • Owner has withdrawn accommodations (under Chapter 12.75) from rent or lease anytime within the last 15 years.

It is important to note that most of the location-based restrictions are subject to local ordinance. Certain cities may decide to allow SB 9 development in some of the above 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

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?

image of a sb 9 eligible house on a large lot

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 lot split when situated on large lots—ideally over 7,500 square feet.

2. How level is the lot?

image of a grass hill

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.

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

image of SB 9 ideal lot on on the back of 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: The property division doesn't need to be a straight line, and it is possible to create a "flag lot" 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?

image of SB 9 ideal lot on a corner

Access to a second right-of-way or alley is ideal because it easily allows for dual entrances. 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.

5. Is it on a sewer or septic system?

image of sewer

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.

6. Is it part of an HOA?

image of HOA community

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.

For more information on HOAs and SB9, read this post.

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.