We’re taking advantage of a new California law called SB9, which is designed to expand housing supply (https://cayimby.org/sb-9/) in the state. SB9 allows homeowners to split their single-family residential lot into two separate lots and build up to two new housing units on each. It just went into effect on January 1.
The new development opportunity opened by SB9 is only available to homeowners, most of whom are under-resourced to take advantage of it. That’s where we come in. We take care of splitting your lot, financing the new development, managing construction, and selling the new home. You receive 80% of the net profit. You can see whether your property qualifies here: https://search.homestead.is.
We’re a couple of architects who have been working on large scale urban plans, affordable housing financing, and increasing housing supply for a while now. Our first idea was to help homeowners create lifelong revenue streams by building ADUs (Accessory Dwelling Units) on their property. We figured out how to manage builds that finish up to 5x faster than normal builders and are 2x faster than prefab from first touch to a turnkey unit. Homeowners have used the income from our ADUs to start a business, move to a different country during the pandemic, become cash flow positive on their mortgage, house grandparents, and move out renters to reclaim their home for the first time in a decade.
The problem was that over 70% of our leads could not afford the upfront costs of construction. With Homestead, our latest iteration, we solve this by taking on the risk of funding the project. We provide a way for homeowners to finance $400k+ of construction without risking their home or credit as collateral. We split the lot, bring financing, and our expert team of architects and project managers oversee the project until sale.
In high value markets, that means a homeowner could make over $1M without risking, or spending, a dollar. Under normal circumstances, this would be too good to be true, but that’s how crazy the housing market has become. SB9 represents a $6T (!) opportunity in California alone. For example, a 1-mile radius of San Fernando Valley has $3.35B in untapped development equity—4,600 opportunities to add new homes and duplexes through SB9.
Capturing the opportunity of SB9 requires developing new financing products, development expertise, and customer-facing sales. Development is an incredibly regulatory-heavy and location-specific industry. Homestead is based in Los Angeles (by far the best market for SB9) and we have sold 80 ADUs (59 since March) with 10 built and 17 projects underway.
Here’s an example (https://www.zillow.com/homes/4511-Sally-Dr-San-Jose,-CA-9512...) of how this could work for a typical San Jose home — footsteps away from one of our customers. The new house on the split lot has a sale value of $1.5M, based on a same-sized new-build home on the block. The total cost for building the new unit, including permitting, local fees, and financing, is $700k. That’s a net profit of $800k, of which the homeowner’s 80% share is $640k.
Our mission is to increase the housing supply in California. In contrast to the develop-and-flip approach, we add new housing while sharing profit and keeping communities in place. We want to change the lives of teachers, nurses, social workers—doubling or tripling their liquid net worth—so they can do things like early retirement and paying off their kids' student debt or helping them make their first down payment.
We know that a lot of you share our passion for the housing supply problem, so we’re looking forward to a good discussion. Please share your questions, feedback, ideas, and experiences in this area!