HELP. Subdividing my property and building a duplex on it.

Riverside, California
Multi-Family and Apartment Investing
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HELP. Subdividing my property and building a duplex on it.

Jacob Ortiz
Real Estate Agent · Riverside, CA · Member since 2022 · 7 posts · 4 votes

Hey BP community I need your Help & Input  please . 

       I want to take advantage of the new Senate Bill 9 (SB9) in California . With SB9 Cities must allow up to two lots (and up to four homes total) within single-family residential zones without any discretionary review as long as your property . Every city in California is handling this new legislation differently and have their own procedures . Here is the city of riversides FAQ for anyone who wants general information about SB9. 

 SB9 Riverside FAQ's

SB9 Lot Configurations 

      I am a fairly new investor . I currently own a 2 unit property in Riverside, California . The lot is .53 acres and 60% of the land is vacant and the other 40% already has 2 units on it so this is perfect for a lot split . I have already talked to the city planning department and they were extremely helpful . My property passes their pre-clearance and looks like I will be able to perform the subdivision under SB9  . I figure I already own the land why not build on it if the numbers make sense . The plan is to perform an "Urban Lot Split" , subdivide the property 60%-40% and build a Duplex on the new parcel since I will be able to get another address and separate utilities. I am currently talking to a residential land surveyor to  work on a site survey and Parcel Map proposal for me ,  up to the Tentative Parcel Map Approval. 

Here is where I need help . I really need to get an estimate on what it would cost to build a duplex on my property. I have the funds to perform the urban lot split and pay an architect for plans . To finance building the project Ive talked to a couple Hard Money lenders and thinking about doing a second mortgage on the property . Thoughts ? The property is worth around $570k right now and I owe $415K . My estimated ARV with adding the duplex should be 1.2million. Is leveraging my original property to fund building a duplex on the new separate parcel a smart idea?

What do you guys think of this plan ? Open to all ideas . Also just curious if you guys want to follow me along my project I will keep posting along the way . 

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David Song
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
4y
Quote from @Jacob Ortiz:

Hey BP community I need your Help & Input  please . 

       I want to take advantage of the new Senate Bill 9 (SB9) in California . With SB9 Cities must allow up to two lots (and up to four homes total) within single-family residential zones without any discretionary review as long as your property . Every city in California is handling this new legislation differently and have their own procedures . Here is the city of riversides FAQ for anyone who wants general information about SB9. 

 SB9 Riverside FAQ's

SB9 Lot Configurations 

      I am a fairly new investor . I currently own a 2 unit property in Riverside, California . The lot is .53 acres and 60% of the land is vacant and the other 40% already has 2 units on it so this is perfect for a lot split . I have already talked to the city planning department and they were extremely helpful . My property passes their pre-clearance and looks like I will be able to perform the subdivision under SB9  . I figure I already own the land why not build on it if the numbers make sense . The plan is to perform an "Urban Lot Split" , subdivide the property 60%-40% and build a Duplex on the new parcel since I will be able to get another address and separate utilities. I am currently talking to a residential land surveyor to  work on a site survey and Parcel Map proposal for me ,  up to the Tentative Parcel Map Approval. 

Here is where I need help . I really need to get an estimate on what it would cost to build a duplex on my property. I have the funds to perform the urban lot split and pay an architect for plans . To finance building the project Ive talked to a couple Hard Money lenders and thinking about doing a second mortgage on the property . Thoughts ? The property is worth around $570k right now and I owe $415K . My estimated ARV with adding the duplex should be 1.2million. Is leveraging my original property to fund building a duplex on the new separate parcel a smart idea?

What do you guys think of this plan ? Open to all ideas . Also just curious if you guys want to follow me along my project I will keep posting along the way . 

This is dangerous. Do not do it until you are clear on the construction cost. Riverside has a pretty low price per sf for existing houses. The recent high construction cost might make your effort worthless or even negative. Bottom line, if your construction cost is $350-400/sf, the newly built house is only worth around $400/sf. That would be a losing deal for sure. Remember: after the split, the value of your original house decreases. 

I will only do it in markets where final product sale is at least double the construction cost on per sf basis. $800/sf product minimum.

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  • Account Closed
    Developer · Los Angeles · Member since 2022 · 45 posts · 16 votes
    4y
    You said your property passes their preliminary checklist. Maybe you already have but I would just make sure you do not need a Habitat Study. I just had mine done and it was fairly straightforward, but it is a potential project killer. If it is required I think that is the first person you actually want to cut a check to. Again, maybe you're already doing this but I would talk to the Fire Department as well because they can make you move hydrants and create fire lanes, also potential project killers.
    I just finished a 1200sqft ADU with 10' deep piles on a cliff in LA for $333sqft total project cost. I did however put A LOT of sweat equity into the project. Best of luck!
    2Reply
  • Mike Smith
    Boise, ID · Member since 2018 · 203 posts · 188 votes
    4y

    Sounds like you have been doing a lot of due diligence.  I would recommend only using hard money as a last resort.  If your construction schedule takes longer than expected, you are going to be on the hook for large interest payments without any revenue to help pay for it.  Several better options:

    1. You may be able to get a construction loan based on the plans and specifications for the new duplex.  You will have to put your equity in first (If you can get a separate parcel, the bank will count the lot as equity).  However, you will need to get your first mortgage holder to release the 60% of the land you need to split off.

    2. If you have further equity in your home, get a HELOC.

    3. If I were in your shoes, I would rather get an equity partner than deal with a hard money lender, but that's just me.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y

    Do you own the property with zero loan.  If you have a lender get them involved early.  

    Good luck

    0Reply
  • Jacob Ortiz
    OP
    Real Estate Agent · Riverside, CA · Member since 2022 · 7 posts · 4 votes
    4y

    @Account Closed 

    Thank you for the heads up on the Habitat Study and fire Department . Definitely will make that call to the fire department . I'm not sure at this moment if I need a Habitat Study Ill have to ask . 

    0Reply
  • Jacob Ortiz
    OP
    Real Estate Agent · Riverside, CA · Member since 2022 · 7 posts · 4 votes
    4y

    @Mike Smith

    I really appreciate your advice . Definitely would not want to be making high interest payments on a asset that's not producing income yet . 

    I'm really curious with performing the lot split under SB9 . How will my lender take me Splitting off the land? Do they have to be notified ?

    If so I wonder what the process looks like to get my first mortgage holder to release the 60% of the land I need to split off.

    Knowing now that the bank will count the separate parcel as equity that's good news . 

    You are correct about getting an equity partner. Need to look further for the connections out here . 







    0Reply
  • David Friedman
    Property Manager · San Bernardino, CA · Member since 2014 · 473 posts · 238 votes
    4y

    Talk to a commercial lender that specializes in construction loans. Ask them how they normally fund these types of deals and follow that path to a T. I have figured out that you need to structure your deals in a way that conventional lenders would be interested in them otherwise you will be stuck paying 8%+ for hard money all of your life.

    0Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    4y
    Quote from @Jacob Ortiz:

    Hey BP community I need your Help & Input  please . 

           I want to take advantage of the new Senate Bill 9 (SB9) in California . With SB9 Cities must allow up to two lots (and up to four homes total) within single-family residential zones without any discretionary review as long as your property . Every city in California is handling this new legislation differently and have their own procedures . Here is the city of riversides FAQ for anyone who wants general information about SB9. 

     SB9 Riverside FAQ's

    SB9 Lot Configurations 

          I am a fairly new investor . I currently own a 2 unit property in Riverside, California . The lot is .53 acres and 60% of the land is vacant and the other 40% already has 2 units on it so this is perfect for a lot split . I have already talked to the city planning department and they were extremely helpful . My property passes their pre-clearance and looks like I will be able to perform the subdivision under SB9  . I figure I already own the land why not build on it if the numbers make sense . The plan is to perform an "Urban Lot Split" , subdivide the property 60%-40% and build a Duplex on the new parcel since I will be able to get another address and separate utilities. I am currently talking to a residential land surveyor to  work on a site survey and Parcel Map proposal for me ,  up to the Tentative Parcel Map Approval. 

    Here is where I need help . I really need to get an estimate on what it would cost to build a duplex on my property. I have the funds to perform the urban lot split and pay an architect for plans . To finance building the project Ive talked to a couple Hard Money lenders and thinking about doing a second mortgage on the property . Thoughts ? The property is worth around $570k right now and I owe $415K . My estimated ARV with adding the duplex should be 1.2million. Is leveraging my original property to fund building a duplex on the new separate parcel a smart idea?

    What do you guys think of this plan ? Open to all ideas . Also just curious if you guys want to follow me along my project I will keep posting along the way . 

    This is dangerous. Do not do it until you are clear on the construction cost. Riverside has a pretty low price per sf for existing houses. The recent high construction cost might make your effort worthless or even negative. Bottom line, if your construction cost is $350-400/sf, the newly built house is only worth around $400/sf. That would be a losing deal for sure. Remember: after the split, the value of your original house decreases. 

    I will only do it in markets where final product sale is at least double the construction cost on per sf basis. $800/sf product minimum.

    2Reply
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