“We get a lot of calls where homeowners say, ‘You sent me a letter, but this is not possible.’ And we’re like, ‘Actually it is.’ Some people just don’t even see the opportunity. We’re blowing minds left and right,” says Gloria Riechers, co-founder of Riechers Engineering, a firm specializing in lot splits under California’s Senate Bill 9 (SB 9).
While accessory dwelling units (ADUs) have become a household term in California’s real estate landscape, another opportunity remains largely untapped: lot splits. This legislative tool allows homeowners to divide their single-family residential properties into separate parcels, potentially creating up to four housing units where only one stood before. Despite its significant potential, adoption has been surprisingly slow – but new legislation on the horizon could substantially change the market.
SB 9, which took effect in January 2022, fundamentally changed how homeowners can utilize their properties by eliminating minimum lot size requirements that previously prevented subdivisions.
“Previously, let’s say you were a homeowner at the single family residential home. You couldn’t typically do a lot split unless you had a huge property because of minimum lot size,” Riechers explains. “But now in California, there’s no longer a minimum lot size requirement, so you can split properties that seemed impossibly small before. Each new parcel only needs to be 1200 square feet, which is tiny in real estate terms.”
The implications are substantial: homeowners can now split their lots and build two housing units on each resulting parcel, creating up to four full-sized homes where zoning previously allowed only one.
“You’re not limited to an ADU anymore. So previously, you could just do an ADU and a JADU, and now you have four full-sized homes. So it’s totally changing the landscape of single-family residential property,” Riechers notes.
According to Riechers, current adopters of lot splits span a diverse range of motivations:
The financial upside can be substantial. “Depending on the location, a lot split alone can increase property value by 300,000 to over a million dollars simply because you’re creating another buildable California real estate asset,” says Riechers.
Despite its potential to increase property values by “$300,000 to over a million dollars” according to Riechers, SB 9 lot splits have seen limited adoption. Riechers Engineering, which she describes as having completed more projects than any other company in this space, has only facilitated about 150 lot splits statewide.
Several factors contribute to this slow uptake:
The most significant development for this emerging market is Senate Bill 677, currently making its way through the California legislature and expected to considerably expand lot split opportunities.
“SB 677 is going to dramatically accelerate the market,” Riechers predicts, “because it removes the owner occupancy requirement, which means developers can now come in, invest in properties, split the lots, and develop them.”
The proposed legislation removes several key restrictions:
“I think that’s been the biggest hindrance,” Riechers says of the owner-occupancy requirement, “and a lot of homeowners don’t have 60k lying around in cash, but real estate investors surely do.”
To address the financial barriers, Riechers Engineering has developed innovative approaches. The firm works with preferred partners—developers, architects, and investors—who can front the costs for homeowners.
“We have these preferred partners that we work with that have varying business models, but essentially they will put up the money for the lot split, pre-purchase the second lot,” Riechers explains. “They’ll say, ‘Hey, I know you want to do this lot split, we’ll guarantee that you get $370,000 at the end of this. [You] don’t have to pay anything.'”
Additionally, Riechers Engineering has structured its own business model to minimize risk for homeowners.
“We design our business model to take on all the risk, so we actually pay for all the costs for the lot split. We put tens of thousands of our own money on the line for every project, and our clients only pay us at the very end, if and when we’re successful,” says Riechers.
For property owners weighing their options for maximizing property value, Riechers offers clear guidance.
“Sometimes we have people come to us asking, ‘Okay, should we do an ADU, or should we do a lot split?’… The way I see it is that if you do the lot split, you are tremendously increasing your property value. You’re not just building a little granny unit. You’re actually creating a whole new real estate asset that can be sold separately.”
This perspective highlights a critical difference: ADUs increase utility and rental income potential, but lot splits create entirely new real estate assets with separate deeds that can be sold, financed, or developed independently.
As awareness grows and legislative barriers potentially decrease, lot splits could become as commonplace as ADUs in California’s housing market. For real estate professionals, investors, and homeowners, understanding this tool’s potential now may provide a significant competitive advantage.
If SB 677 passes as expected later this year, the market could see substantial investment activity as developers and investors enter a space previously limited to individual homeowners.
As Riechers puts it: “It’s just going to change the whole landscape, right? Because when that comes into play, anyone can come in and either buy a property or invest in one and have it split. It doesn’t matter who’s living there… I expect a tremendous increase in lot splits with this new law, because it unlocks so much possibility.”
For a state working to address its housing shortage, lot splits represent a promising approach to incrementally increasing density in established neighborhoods without the political challenges often associated with large-scale rezoning efforts. This under-utilized opportunity merits closer attention from real estate professionals and investors throughout California.
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