Thinking Small in Big City

3 Reasons Why Thinking Small in the Big City Could be a Good Investment

For a market with a seemingly adverse attitude towards density, even in the midst of a severe housing shortage, small-lot development can be a solution for buyers and investors. Looking around the Los Angeles metro area, it is apparent that more and more submarkets are embracing this style of redevelopment opportunities as raw land, when available, tends to be on the smaller side. Small-lot development is an often-misunderstood land-use policy that encompasses the building of multiple single-family homes on a single land parcel. 

What is a small-lot development?

A small-lot subdivision is a project with multiple free-standing single-family homes on smaller than conventionally-sized home lot. These homes are more affordable while making density more appealing. Small-lot homes may be attached or separate, with as little as 3- to 5-foot side yards between homes – per the Los Angeles city ordinance. Here are three reasons why small-lot development might be a good investment.

  1. Lower purchase price

Many small-lot developments start with the purchase of a small, older house in an area governed by the city’s small-lot subdivision ordinance. These homes can be replaced with new, efficient residences, often near L.A.’s expanding mass transit system.

  • One house turns into multiple assets

Small-lot development can replace a single house with multiple individual residences. Several small-lot projects in Los Angeles have come online recently or are in the works. A 27-unit development recently broke ground in North Hollywood. Houses are expected to start in the high $600,000 range.

Other small-lot developments in L.A. include a seven-unit project in Hancock Park with individual homes that start at $1.7 million and 10-unit project on the border of Echo Park and Silver Lake with homes that start at about $1 million.

  • Apartment/condo convenience with single-family benefits

Apartments, townhouses, and condominiums are rented and include shared walls or purchased but include costly association fees and assessments. Small lot development homes are individually owned. Straightforward maintenance agreements govern common areas, such as driveways, and don’t include (often expensive) monthly homeowners’ association fees.

Thinking Small Can Be a Big Opportunity

Small-lot development can be tricky and finding the right neighborhood with the right zoning and right market characteristics isn’t easy. However, the right small-lot subdivision can be a big opportunity for savvy market investors.