So I am currently looking to offer on a home that has a basement divided up into two units (A studio and 2BR) with a main home on top. The two units in the basement have full baths and full kitchens already. The home is in an area zoned for Single-Family but allows for Accessory Dwelling Units (ADUs). The issue is that the code of ordinance specifies only allowing one ADU. We were really hoping to buy this property and rent out the basement in two separate units either on AirBnB or longer term.
At this point, I'm wondering if I should still offer since the numbers are only where I want them to be renting out two units. I figure I could make half of it an ADU and then potentially rent out the other half of the basement to my "roommate" even though they have their own space with a separate entrance. Not sure if that's a bad idea and would like input. Any ideas or advice for this situation? Thanks in advance!
Wow, this can be a can of worms, but it is he/she that brings solutions to problems that wins the deal and makes profit doing so. In problems lies opportunity.
That said, here is what I would do. I would go to the city or county planning dept. tell them you are considering buying this place and tell them how the current layout of the home is set up. Ask them what it would take to get this rezoned as either a duplex with an ADU or a triplex. They should be able to tell you if it can be done and if so, what paperwork, permits and various costs would be. They will also tell you it must be inspected and depending on the inspection they can make you rip it all out or just update certain things.
Once you have known costs, you can go back to the seller and explain that anyone that buys that home will end up doing the same that you will be required to do as their conventional or govie lenders will stop the loan based on the appraiser identifying these as unpermitted additions. You can then offer him a price that reflects the costs you will have to bear as well adding profit in there for yourself to get these things done. So if it costs you $40K to get this done, offer a $70K reduction in price.
The loan side of things, you may have to take this as Hard Money or Fix n Flip money to get it taken down, get rehab done and then refinance it to a conventional loan. If you think you can get it done just on a conventional loan, then consult with your loan officer being honest with full disclosure of what needs to be done, they can even consult with underwriting ahead of time and let you know if the loan will fly as a conventional loan.
Be the solution provider and because of it you will be the winning bidder.
I hope this helps?
Are those kitchens legal? Depending on jurisdiction, sometimes only 1 kitchen is allowed per property or SF. That's your first thing to check...
@Jake Collins - Which state is this in? If it is in California, then you should go for it because of new laws coming down like SB 9 and 10.
Thanks for all the help everyone! Certainly was a weird situation. Decided to go with out best offer and try to figure it out during the inspection period but the seller apparently already had a buyer in mind. Turns out that buyer was also willing to accept with the terms that it was an unpermitted ADU (we weren't even asked despite having the high offer). Could have been tough but could have also made good money. That's how it goes, I guess. Onto the next! Thanks again!