Buying an illegal Duplex recorded as a SFH and occupy both units

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Buying an illegal Duplex recorded as a SFH and occupy both units

Mathou Ba
Member since 2020 · 6 posts · 0 votes

Hi everyone!

We are looking to buy a house listed as a Duplex but registered as a Single Family Home at county level (Alameda,CA). The county records shows a SFH with 1 kitchen and 3 br while in reality it is a Duplex with 2 kitchen and 6 bedrooms. The way it's built looks solid and in workmanlike manner. The seller has bought the property as an illegal duplex as well 40+ years ago.

The change in property characteristics has been submitted to the County by the seller but is still pending (answer to be expected by 2021 because of Covid backlog).

We are buying jointly as a family and would occupy both units. We know that the appraisal might limit our loan capacity in this scenario.

What is the potential future risk especially if the county rejects the official change to a duplex once we’ve bought the house?

Will it impact potential future permits requests (for example building an ADU in the backyard).

Anything else that you’d warn us about? (I know the risks if we want to rent such a place but this will not be the case)

Thanks a lot for your help!

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Sebastian MarroquinPro Member
Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
6y

This happens a lot: 

1. Make sure you are not paying a duplex price for a SFH on title ? (unless you want to of course: as the market is very competitive right now).

2. Call building and safety and tell them your scenario: I would think of worst case scenario: which will be that you either get the necessary permits or knock it down. (get a contractor to check the work: foundation, framing, electrical, plumbing etc : as the city will check on that and will want to make sure that everything is ok to issue permits). 

3. There is a strong chance that they will require you to do building plans, with full details and engineering : with up to date building codes: you will need a drafter or architect. and why its important to google : building and safety and speak to the correct personnel. 

4. Look at zoning: set backs: and make sure that the lot allows for a second unit: 

Remember that a second unit is not the same as an ADU: different parameters: like set backs from property lines and from main structure, also parking requirements, lot coverage and allowable total sq footage.

All questions that need to be answered before closing escrow. 

If not: you will have potential loses. 

To recap; say a duplex in that area goes for $500k  and single homes go for $400k 

and you are in escrow for $400k + - : then you my friend are getting market prices and the 2nd unit is a plus and the home may be a good deal even after knocking it down or having to permit the second home after the fact. 

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  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    6y

    This happens a lot: 

    1. Make sure you are not paying a duplex price for a SFH on title ? (unless you want to of course: as the market is very competitive right now).

    2. Call building and safety and tell them your scenario: I would think of worst case scenario: which will be that you either get the necessary permits or knock it down. (get a contractor to check the work: foundation, framing, electrical, plumbing etc : as the city will check on that and will want to make sure that everything is ok to issue permits). 

    3. There is a strong chance that they will require you to do building plans, with full details and engineering : with up to date building codes: you will need a drafter or architect. and why its important to google : building and safety and speak to the correct personnel. 

    4. Look at zoning: set backs: and make sure that the lot allows for a second unit: 

    Remember that a second unit is not the same as an ADU: different parameters: like set backs from property lines and from main structure, also parking requirements, lot coverage and allowable total sq footage.

    All questions that need to be answered before closing escrow. 

    If not: you will have potential loses. 

    To recap; say a duplex in that area goes for $500k  and single homes go for $400k 

    and you are in escrow for $400k + - : then you my friend are getting market prices and the 2nd unit is a plus and the home may be a good deal even after knocking it down or having to permit the second home after the fact. 

    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    You did not indicate if the zoning allows for a duplex.  

    The easiest route to legal may be to convert the unpermitted unit to an ADU. The ADU rules allow them to be added to any SFH. In addition, items like minimum size, setbacks, etc. are typically less than for non-ADU units. It has never been easier to add a legal ADU in CA. For example, a property I am in escrow on has a minimum unit size by zoning of 700', but the ADU rules allow a smaller unit.

    If you can get the unpermitted unit added to allow the property to be a duplex, that is the preferred route. Duplexes have a value greater than the SFH with an ADU. If you cannot get the unit added to make the property a duplex, evaluate the costs to get the unpermitted unit changed to a legal ADU. The ADU will add less value than the duplex option, but the cash flow should be the same as the duplex when you go to rent both out as long term rentals potentially in the future.

    The appraiser is likely to not assign any value to the unpermitted unit if he can determine that it is an unpermitted unit.  There is a slight chance that the appraiser marks the appraisal "subject to: " and indicates the unit has to be converted to a legal unit.  The unpermitted unit, therefore, may present some financing challenges.  Make sure your offer has a financing contingency if you are unwilling to not have conventional (Freddy/fanny) financing.  It would suck to lose the earnest deposit due to not being able to finance the unit.

    Make sure you get a thorough property inspection.  Things that look workmanlike may have many less visible issues.  A common one is that the electrical is expanded above code and a panel upgrade with a potential new electrical drop is required.  I use the best inspector that I know of and consider the fees worth the peace of mind.  Make sure your inspector is capable of evaluating unpermitted work.  Make sure your offer has an inspection contingency.  It would suck to loose the earnest deposit because the inspection shows the unpermitted unit is a POS and will be very expensive to convert to a legal unit or worse should be torn down.

    If your offer has the necessary contingencies, these type of properties can be an opportunity.  You need to do your due diligence to determine if this is an opportunity or a problem.

    Good luck

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  • Mathou Ba
    OP
    Member since 2020 · 6 posts · 0 votes
    6y

    Thank you both, super helpful to read your comments & recommendations.

    I understand that the number one thing to check is the zoning.

    Do you know what would happen if the county rejects the request to update the record from SFH to Duplex or ADU submitted by current seller? Could they force us to tear down the added kitchen and check back with in person inspections?

    I am asking because we are 2 couples investing together and truly need these 2 units to live in.

    0Reply
  • Mathou Ba
    OP
    Member since 2020 · 6 posts · 0 votes
    6y

    The property is located in an RM-2 zone so it looks like good news right?

    « RM-2 Mixed Housing Type Residential - 2 Zone. The intent of the RM-2 Zone is to create, maintain, and enhance residential areas characterized by a mix of single family homes, duplexes, townhouses, small multi-unit buildings, and neighborhood businesses where appropriate »

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Mathou Ba:

    The property is located in an RM-2 zone so it looks like good news right?

    « RM-2 Mixed Housing Type Residential - 2 Zone. The intent of the RM-2 Zone is to create, maintain, and enhance residential areas characterized by a mix of single family homes, duplexes, townhouses, small multi-unit buildings, and neighborhood businesses where appropriate »

    My view is it provides hope that it can become a permitted duplex. Typically multi residence zoned still has various restrictions. I'm in escrow on purchase that is R2-12. The second number is units per acre. That is not the only restriction. There is a 700' minimum size. There are setback restrictions. There are parking restrictions. Note the restrictions on an ADU is less restrictive than the restrictions to convert to a duplex.

    As for a tear down, assuming the unit was built before this year, SB13 provides some guidance.  It basically indicates the ADU is to be approved if there is no Heath and safety issues  

    (2) The owner of an accessory dwelling unit that receives a notice to correct violations or abate nuisances as described in paragraph (1) may, in the form and manner prescribed by the enforcement agency, submit an application to the enforcement agency requesting that enforcement of the violation be delayed for five years on the basis that correcting the violation is not necessary to protect health and safety.

    (3) The enforcement agency shall grant an application described in paragraph (2) if the enforcement determines that correcting the violation is not necessary to protect health and safety. In making this determination, the enforcement agency shall consult with the entity responsible for enforcement of building standards and other regulations of the State Fire Marshal pursuant to Section 13146.

    You should strive for the legal duplex and have the ADU as the backup. In your due diligence period (17 days?), you should confirm that one or the other Is a viable option. In my market there is an ADU vendor that for a reasonable fee will analyze the potential for an ADU.

    Use your due diligence period to determine if the unpermitted unit is an opportunity or a problem  

    Good luck.  

    1Reply
  • David Frandsen
    Real Estate Agent · San Diego, CA · Member since 2014 · 205 posts · 123 votes
    6y

    @Mathou Ba Really good advice here from @Dan H. and @Sebastian Marroquin. I don't think you mentioned how much square footage. This will give us an idea of the feasibility to convert to an ADU. There will be a maximum size attached ADU that is allowed for your area.

    0Reply
  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    6y

    Thanks David and yes he is right: 

    I think you will get really more good advice on here... but unfortunately we are fishing at this point... as there are a lot of moving parts and someone that knows what they are doing should take lead on this: someone that can help you ask the right questions of the city, building and safety and to go onsite and see what you are working with. 

    I think Dan's suggestion is best: go with that person or an architect (or drafter) that can guide you and put all the missing pieces together. 

    They will charge you about $300 to $500 for an assessment and if it does qualify for more: adu or second unit, then they will of course charge you more to put everything together. But at this point, i don't think you know enough to move along by yourself. (hope you don't take insult in this.. just my honest advise) 

    Aren't you working with a realtor to buy this place? (they should help at least guide you to the right next person to talk to and the right next move). 

    0Reply
  • Mathou Ba
    OP
    Member since 2020 · 6 posts · 0 votes
    6y

    @David Frandsen

    The house is currently a 1900sq feet 2 story duplex with 2 kitchens and 6 bedrooms, with 2 electrical meters (added in the 70’ as per city records). 1 unit on each floor.

    Although, at county level, this property is a 1500sq feet SFH registered with 1 kitchen and 3 bedrooms.

    The 400sq feet addition is divided between the top and bottom unit, meaning that what has been added at ground level is only 200sq feet at the back of the house.

    0Reply
  • Mathou Ba
    OP
    Member since 2020 · 6 posts · 0 votes
    6y

    @Sebastian Marroquin

    Thanks Sebastian. We have a realtor and did all the necessary due diligence by calling the city, the county etc but unfortunately the timing is so tight (deadline for offers today) and covid triggered so many delays for county updates kn property (expected answer in 2021) that I decides to seek extra advice on this forum.

    0Reply
  • Mathou Ba
    OP
    Member since 2020 · 6 posts · 0 votes
    6y

    @Sebastian Marroquin (sorry for the typos, can’t edit my post 😅)

    0Reply
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