I chatted with an architect friend down in Los Angeles last week. He was contemplating recent legislation that allows for various forms of infill development. On paper he could build a backyard cottage or even subdivide his 1920s-era oversized lot into two smaller, separate lots. He reached out to industry people who are intimate with the zoning and building approval process and ran some numbers.
The first stumbling block they identified was the road out in front of his house. It’s only 18 feet wide, which is legally substandard according to the fire marshal. In the event of an emergency, firefighting vehicles would struggle to access the location. So, a special variance application would need to be submitted to the city. That request costs $15,000. In order to get the very best chance that the variance will land on the right desk and be favorably reviewed by the right person (with absolutely no guarantee of a positive judgement), a well-seasoned professional needs to be hired to shepherd the documents through the process. That person’s standard fee is $10,000. Otherwise, the paperwork will simply be lost in the shuffle and eventually die a slow, bureaucratic death.
If that variance process is successful (a really big “if”), the sloped site will need to be prepared with a foundation designed to meet current codes and engineering specifications. That’s estimated to be $300,000. Once the foundation is approved and built, the maximum size home that can legally be built in this particular case would be 1,000 square feet (93 meters square) and the minimum cost for bare-bones, nothing-special construction is currently $400 per square foot. So my friend is looking at an absolute minimum of $725,000 for an infill cottage.
In a best case scenario, this whole process would take two or three years, assuming the permits were issued in a timely fashion, construction trades were readily available, inspections were approved on time, and there were no big surprises. At that $725,000 price point, with today’s interest rates, and prevailing rents…he believes he can cover his expenses and the property will cash flow. In theory. But he’d be putting a great deal at risk and the consequences of failure would be catastrophic.