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Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot? It seems like you would just be e

Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot? It seems like you would just be extracting your 20% from wealth the owner already has, leaving them poorer. I guess this could be good if they really didn't want to move.

frakkingcylons 5y ago
That extra value of the lot isn't exactly liquid on its own. That's what you get in exchange for 20%.
metadat 5y ago
Yes, it's mostly only good for the company owners / YC. Doesn't seem in most individuals best interest unless they really need the funds and don't want to move.
- sam_schneider 5y ago
  We disagree! Most people do not have access to the equity underneath their feet—they do not have the income to utilize it as cash, and so it amounts to golden handcuffs. We enable middle and lower income homeowners to access it without moving—a huge plus for communities.
  - toomuchtodo 5y ago
    I think you’ve got first mover advantage until someone with deep pockets (Zillow, OpenDoor, SVB, Rocket Mortgage) copies this, FHA 203k style (this is sort of, but not quite, like a construction or rehab loan). Best wishes for the endeavor if you can scale fast and stay ahead of competitors. Anything that provides more housing with minimal negative impact is welcome. The riskiest part is extending credit (imho) to marginal borrowers (low to middle class), but the value of the land is proven, so the rest is logistics.
    - theptip 5y ago
      I’d guess the new house is collateral, and there is some Joint Venture vehicle (LLC?) that the financiers invest in and that owns the new house, so no credit needs to be extended directly to the homeowner. You don’t need to structure this with credit risk on the original homeowner. The investment risk would presumably be mostly if the owner moves and the subdivision becomes inegligible. Or of course if they aren’t as good at building as they think and can’t clear 20%, or housing market tanks…
      - toomuchtodo 5y ago
        The land is the collateral. The risk is the homeowner forecloses while you're mid project (or the title is otherwise impaired, making it difficult to unwind the transaction or recoup any funds).
        theptip 5y ago
        Presumably the homeowner doesn’t own the land, they have a mortgage. So their bank has first lien on the land. You could take a second lien but you’re behind the bank on the mortgage.
        toomuchtodo 5y ago
        Right, you’d take a junior lien position and not extend credit beyond a certain percentage of total land value (aggregate loans to value), or you’d pay off the first, provide a financing bridge, and originate a new first, securitizing it to finalize the transaction.
    - pempem 5y ago
      First mover is definitely an interpretation. There are tons of places offering this service, they just dont post on HN.
  - nrmitchi 5y ago
    > they do not have the income to utilize it as cash I take it by this you're specifically targeting individuals who can't qualify for a HELOC or other (very common) methods of accessing home equity? I assume you have data to suggest that "most people" with SB-9 eligible lots are incapable of opening a heloc?
    - celestialcheese 5y ago
      Can't pay off your house with a HELOC. If your goal is to pay for college or buy a boat, HELOCs can be great. This is super appealing to me because its a path I hadn't considered to becoming debt free with your primary residence, which is a large goal for many people, including myself.
      - nrmitchi 5y ago
        That's a bit of a goal-post-moving response. The statement I responded to was that people can't "use their equity as cash". Saying that you can't use a heloc to pay off your home is *true*, but not really related to using equity as cash.
  - metadat 5y ago
    Sam, do you personally plan to live in the kind of community y'all are aiming to create? A scaled denser version of the house linked in your post doesn't seem like particularly appealing scenario for individuals, in the long run. OTOH, I can see the appeal from a pure capitalist perspective. You guys won't be the only ones seeking to take advantage of the new rules, it's not personal and I can't fault you for it.
    - seanmp 5y ago
      I personally live in this kind of density and really enjoy it. I have great relationships with my neighbors. I think you'd find that many people use their backyards much less than they would initially plan to, and many would happily trade it for income if they had an opportunity like this.
    - sam_schneider 5y ago
      I am doing it as soon as I purchase a house! I couldn't afford one until SB9—I could make the down payment, but because of my low income (obviously its relative) it would be hard to make loan payments. With SB9, I can develop with Homestead, and use the sale value to reduce my payments, so I can focus on adding more housing with Homestead! Most of the homeowners who wanted ADUs were lower income & couldn't find financing (likely not HN community). These are multigenerational households where the children live in the house their parents bought with them and their kids. They work two jobs—their yard is rarely used—no one stopped to mourn it. They wanted to make money to help lighten the economic burden of living where they grew up, and maybe not work the night shift, or have to provide their own childcare while working full time. I imagine a large subset of HN and the tech community will not want to lose their yards-and its a free world, we aren't going to take them away! Most of our team is signed up for our buy product. If you think people you know would be interested, send them our way!
      - jelliclesfarm 5y ago
        ok. you are young and not a home owner. i mean this sincerely..please pivot. increasing housing stock almost always makes the cities unaffordable in the long run. this is how we have landed in the current predicament. true to the name of your startup. consider collective homesteads. high density housing is definitely a sustainable solution, but high density without also scaling infrastructure is a bad idea. like everything, it is a numbers game. and the only numbers that make sense here is in $$$$ that makes sense for investors and the taxman. not everyone can own homes. and its ok. building affordable rentable communities that are sustainable is also a laudable effort. and it definitely is a profit maker. first infrastructure, then housing. otherwise, its set up for failure. and the state of california has a really bad record when it comes to how counties are run. their mismanagement over decades have made the state highly taxed and yet unaffordable to most of the population.
sam_schneider 5y ago
Great Q! For a sb9 lot split, the homeowner legally must intend to stay in place on one of the lots for 3 years—we haven't seen a measurable price hike for SB9 eligible lots. We've built a lot of ADUs and they rent about 40% above market, so combined with our better pricing and more efficient & automated processes, we'll definitely create more value for the homeowners than if they did it on their own. If they do elect to do it on their own—it's a full time job—they'd have to price in that labor in a cost-benefit analysis.
- halpert 5y ago
  That makes sense. The value of the land will probably increase once you show how profitable it can be. Best of luck.
  - TimTheTinker 5y ago
    I'll be interested to know if "SB9 eligible" becomes a popular detail to include in NMLS property descriptions. If so, I bet it's not long before SB9 eligibility gets priced into properties, causing even more price hikes (at least in the short term). Would you pay 20% more up front for an SB9 eligible lot if you're guaranteed 20% overall profit from living in the residence for 3 years while doing a lot split and sale of the second property?
    - ericd 5y ago
      Hopefully the supply coming online would counteract some of that via supply/demand.
lazide 5y ago
Uh, not really? They have to stay there anyway for SB9 - this gives them a tractable (aka actually) doable way to get more wealth now without having to leave, and still retaining their home as-is in many cases. And it means SB9 like densification and additional housing is more likely to actually happen. 99% of homeowners could not actually do what you need to do for this densification - the planning, paperwork, and execution to get everything done is very difficult. 20% of net profit in exchange is pretty good actually. You’d need some truly crazy levels (several million+) of pure gain before it would make sense to try it yourself IMO. I’ve done a decent amount of permitted work and far smaller projects can easily burn a year of nights and weekends.
- halpert 5y ago
  But you wouldn't actually have to do the work. The value of the land should increase because the work could be done. It really comes down to whether or not the 3-year provision of SB9 can be enforced, because then there is some value in the homeowner staying in their home while the work is done. Apparently, this is enforced by making the home owner sign an affidavit and then charging them with perjury if they lie. It will be interesting to see if that holds up in court.
  - lazide 5y ago
    That value increase is theoretical, not cash in the bank. People sometimes need cash in the bank. Sometimes theoretical is fine. And since it takes awhile for a buyer to turn the theoretical value into cash (and risk, and work), the theoretical value is also going to be lower than you might think.
    - linuxdude314 5y ago
      If the value increases the owner should be able to tap into that equity by doing a cash-out refinance.
      - halpert 5y ago
        Or just selling their home.
dragonwriter 5y ago
> Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot? Once the market has a consensus.on what the change is, sure; it's fairly speculative what it will be, though; it's not like homes are a fixed price per housing unit and, because who can afford to live nearby also affects value in a positive feedback way (because people pay a premium to not live near poorer people), the relation is not simple or easily predictable.

frakkingcylons 5y ago

That extra value of the lot isn't exactly liquid on its own. That's what you get in exchange for 20%.

metadat 5y ago

Yes, it's mostly only good for the company owners / YC. Doesn't seem in most individuals best interest unless they really need the funds and don't want to move.

sam_schneider 5y ago
We disagree! Most people do not have access to the equity underneath their feet—they do not have the income to utilize it as cash, and so it amounts to golden handcuffs. We enable middle and lower income homeowners to access it without moving—a huge plus for communities.
- toomuchtodo 5y ago
  I think you’ve got first mover advantage until someone with deep pockets (Zillow, OpenDoor, SVB, Rocket Mortgage) copies this, FHA 203k style (this is sort of, but not quite, like a construction or rehab loan). Best wishes for the endeavor if you can scale fast and stay ahead of competitors. Anything that provides more housing with minimal negative impact is welcome. The riskiest part is extending credit (imho) to marginal borrowers (low to middle class), but the value of the land is proven, so the rest is logistics.
  - theptip 5y ago
    I’d guess the new house is collateral, and there is some Joint Venture vehicle (LLC?) that the financiers invest in and that owns the new house, so no credit needs to be extended directly to the homeowner. You don’t need to structure this with credit risk on the original homeowner. The investment risk would presumably be mostly if the owner moves and the subdivision becomes inegligible. Or of course if they aren’t as good at building as they think and can’t clear 20%, or housing market tanks…
    - toomuchtodo 5y ago
      The land is the collateral. The risk is the homeowner forecloses while you're mid project (or the title is otherwise impaired, making it difficult to unwind the transaction or recoup any funds).
      - theptip 5y ago
        Presumably the homeowner doesn’t own the land, they have a mortgage. So their bank has first lien on the land. You could take a second lien but you’re behind the bank on the mortgage.
        toomuchtodo 5y ago
        Right, you’d take a junior lien position and not extend credit beyond a certain percentage of total land value (aggregate loans to value), or you’d pay off the first, provide a financing bridge, and originate a new first, securitizing it to finalize the transaction.
  - pempem 5y ago
    First mover is definitely an interpretation. There are tons of places offering this service, they just dont post on HN.
- nrmitchi 5y ago
  > they do not have the income to utilize it as cash I take it by this you're specifically targeting individuals who can't qualify for a HELOC or other (very common) methods of accessing home equity? I assume you have data to suggest that "most people" with SB-9 eligible lots are incapable of opening a heloc?
  - celestialcheese 5y ago
    Can't pay off your house with a HELOC. If your goal is to pay for college or buy a boat, HELOCs can be great. This is super appealing to me because its a path I hadn't considered to becoming debt free with your primary residence, which is a large goal for many people, including myself.
    - nrmitchi 5y ago
      That's a bit of a goal-post-moving response. The statement I responded to was that people can't "use their equity as cash". Saying that you can't use a heloc to pay off your home is *true*, but not really related to using equity as cash.
- metadat 5y ago
  Sam, do you personally plan to live in the kind of community y'all are aiming to create? A scaled denser version of the house linked in your post doesn't seem like particularly appealing scenario for individuals, in the long run. OTOH, I can see the appeal from a pure capitalist perspective. You guys won't be the only ones seeking to take advantage of the new rules, it's not personal and I can't fault you for it.
  - seanmp 5y ago
    I personally live in this kind of density and really enjoy it. I have great relationships with my neighbors. I think you'd find that many people use their backyards much less than they would initially plan to, and many would happily trade it for income if they had an opportunity like this.
  - sam_schneider 5y ago
    I am doing it as soon as I purchase a house! I couldn't afford one until SB9—I could make the down payment, but because of my low income (obviously its relative) it would be hard to make loan payments. With SB9, I can develop with Homestead, and use the sale value to reduce my payments, so I can focus on adding more housing with Homestead! Most of the homeowners who wanted ADUs were lower income & couldn't find financing (likely not HN community). These are multigenerational households where the children live in the house their parents bought with them and their kids. They work two jobs—their yard is rarely used—no one stopped to mourn it. They wanted to make money to help lighten the economic burden of living where they grew up, and maybe not work the night shift, or have to provide their own childcare while working full time. I imagine a large subset of HN and the tech community will not want to lose their yards-and its a free world, we aren't going to take them away! Most of our team is signed up for our buy product. If you think people you know would be interested, send them our way!
    - jelliclesfarm 5y ago
      ok. you are young and not a home owner. i mean this sincerely..please pivot. increasing housing stock almost always makes the cities unaffordable in the long run. this is how we have landed in the current predicament. true to the name of your startup. consider collective homesteads. high density housing is definitely a sustainable solution, but high density without also scaling infrastructure is a bad idea. like everything, it is a numbers game. and the only numbers that make sense here is in $$$$ that makes sense for investors and the taxman. not everyone can own homes. and its ok. building affordable rentable communities that are sustainable is also a laudable effort. and it definitely is a profit maker. first infrastructure, then housing. otherwise, its set up for failure. and the state of california has a really bad record when it comes to how counties are run. their mismanagement over decades have made the state highly taxed and yet unaffordable to most of the population.

sam_schneider 5y ago

Great Q! For a sb9 lot split, the homeowner legally must intend to stay in place on one of the lots for 3 years—we haven't seen a measurable price hike for SB9 eligible lots. We've built a lot of ADUs and they rent about 40% above market, so combined with our better pricing and more efficient & automated processes, we'll definitely create more value for the homeowners than if they did it on their own. If they do elect to do it on their own—it's a full time job—they'd have to price in that labor in a cost-benefit analysis.

halpert 5y ago
That makes sense. The value of the land will probably increase once you show how profitable it can be. Best of luck.
- TimTheTinker 5y ago
  I'll be interested to know if "SB9 eligible" becomes a popular detail to include in NMLS property descriptions. If so, I bet it's not long before SB9 eligibility gets priced into properties, causing even more price hikes (at least in the short term). Would you pay 20% more up front for an SB9 eligible lot if you're guaranteed 20% overall profit from living in the residence for 3 years while doing a lot split and sale of the second property?
  - ericd 5y ago
    Hopefully the supply coming online would counteract some of that via supply/demand.

lazide 5y ago

Uh, not really? They have to stay there anyway for SB9 - this gives them a tractable (aka actually) doable way to get more wealth now without having to leave, and still retaining their home as-is in many cases. And it means SB9 like densification and additional housing is more likely to actually happen. 99% of homeowners could not actually do what you need to do for this densification - the planning, paperwork, and execution to get everything done is very difficult. 20% of net profit in exchange is pretty good actually. You’d need some truly crazy levels (several million+) of pure gain before it would make sense to try it yourself IMO. I’ve done a decent amount of permitted work and far smaller projects can easily burn a year of nights and weekends.

halpert 5y ago
But you wouldn't actually have to do the work. The value of the land should increase because the work could be done. It really comes down to whether or not the 3-year provision of SB9 can be enforced, because then there is some value in the homeowner staying in their home while the work is done. Apparently, this is enforced by making the home owner sign an affidavit and then charging them with perjury if they lie. It will be interesting to see if that holds up in court.
- lazide 5y ago
  That value increase is theoretical, not cash in the bank. People sometimes need cash in the bank. Sometimes theoretical is fine. And since it takes awhile for a buyer to turn the theoretical value into cash (and risk, and work), the theoretical value is also going to be lower than you might think.
  - linuxdude314 5y ago
    If the value increases the owner should be able to tap into that equity by doing a cash-out refinance.
    - halpert 5y ago
      Or just selling their home.

dragonwriter 5y ago

> Now that SB9 is in effect, shouldn't the ability to split a lot and build on it be priced in to the price of the original lot? Once the market has a consensus.on what the change is, sure; it's fairly speculative what it will be, though; it's not like homes are a fixed price per housing unit and, because who can afford to live nearby also affects value in a positive feedback way (because people pay a premium to not live near poorer people), the relation is not simple or easily predictable.