Waited four years for the ADU ordinance. It arrived without me.

Two adjacent infill lots in a first-ring suburb, bought in 2021 at $71k and $78k. The thesis was that the state was moving on ADU-enabling legislation and the city would follow, and when it did, these lots would support a primary plus a detached unit each, which changes the buyer pool from owner-builders to small developers.

The state did move. The city did follow, roughly on the timeline I expected. And I sold both lots last month at $84k and $91k, which after four years of carry is a loss in real terms and close to flat nominally after transaction costs.

Where it went wrong, specifically:

The ordinance that passed permits an ADU by right, and it also imposed a lot coverage cap and a minimum lot width for the second unit. My lots are 42 feet wide. The width minimum is 45. Both parcels are permanently outside the thing I bought them for, by three feet, on a number that wasn't in any draft I read during the two years of hearings. It appeared in the final markup.

Second thing: I underwrote carry as taxes and nothing else. Taxes on vacant infill in that jurisdiction reassessed twice during the hold and roughly doubled, because the city was aggressively reassessing exactly the parcels it was upzoning. My own thesis raised my carry cost. I didn't see that coming and I should have, it's the same mechanism working on both sides.

Third, and this is the one I actually regret: I never spoke to anyone at planning. Four years, dozens of hours reading agendas and staff reports, and zero conversations with a human who was in the room. A ten minute call at the right moment in year three would have told me the width minimum was live.

What I'd do differently. I'd buy for what the current rules allow and treat the zoning change as free upside, rather than paying for the change in advance. And if I'm going to underwrite a regulatory thesis anyway, I'd budget for reassessment on the parcel and I'd talk to staff every six months, not read about them.

Answer

1karen_whitfieldPG4APRO7

I'd push back gently on the third regret. Talking to staff in year three would have told you the width minimum was live and then what? You'd have had six months to sell into a market that hadn't repriced yet, on two lots that everyone would soon learn were unbuildable for the second unit. Maybe you'd have saved the last year of carry. The mistake was earlier, it's the 42 foot width itself. Narrow infill lots are the first thing every ordinance carves out because the neighbors complain about them the loudest. I'd have wanted a width cushion built into the buy.

The reassessment point is the genuinely new one to me and I've held land for a long time. Upzoning raises assessed value on the way to raising market value, and the assessor gets there first.

3 replies

3tylerbrooks9PassivePRO5

The three feet is the part that will keep me up. You can be right about the direction and lose on a dimension that appeared in a markup. That's not a thing you can research your way out of from a desk, which I think is your actual point.

1jessreyes12AU1APRO8

Dumb question maybe but could you not have combined the two lots into one 84 foot parcel and built there? Or does that fail on something else.