Multi family property vs Single Family with 4 ADUs

Multi-Family and Apartment Investing
3yFollow

Multi family property vs Single Family with 4 ADUs

Alex U.
Investor · San Diego, CA · Member since 2013 · 94 posts · 32 votes

Would a Single Family Home and building 4 ADUs on it  be considered an inferior approach to purchasing a multi family zoned 4-plex?  There are very few multi family properties for sale in our area.  Wanted to see if anyone else has purchased a single family home and added multiple units to it, and how it would compare when selling this type of property from an appraisal standpoint.  

1Reply
40 views

Most Popular Reply

Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
3y

@Alex U. There are a lot of factors that go into that decision including location, total cost, initial capital required, holding cost, ROI, etc when choosing to go with a small multifamily vs a SFR and multiple ADUs. One potential challenge you run in to and I've seen it here in San Diego, if you are trying to sell a house with 3 or 4 ADUs who is your buyer and how quickly can you unload that property if you needed to vs a traditional 4plex. Buyers may not have traditional financing available to them to make that purchase and will be limited to some non-QM options at a higher rate or potentially a commercial loan so that limits the buyer pool vs a traditional 4plex. In some neighborhoods and price points it would be easier to find buyers than other areas. Finding a buyer for a larger development of 30-50 units form a developer that utilized complete communities/TPA would seemingly be easier.

Just something to think about.

Compass5122 Reviews
WebsiteView Page
2Reply
See this reply in the discussion

10 Replies

Jump to latestLatest
  • Sheri FluellenBusiness Member
    Real Estate Agent · Cheyenne, WY · Member since 2020 · 123 posts · 64 votes
    3y

    Great question!! In my town, having more than 1 ADU on a property is not compliant. That would be my first question in answering this question. Is it even allowed?

    [email protected]307-772-1185
    The Titan Real Estate Team, Real Broker52 Reviews
    WebsiteView Page
    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    3y

    Single family with 4 ADU's is like a 5plex. Assuming it passed zoning etc I think it would be a maintenance and capex hog compared to a real MF.

    A real MF has all your tenants under one roof and gives you economies of scale. I think it would appraise lower and take longer to sell. But if the numbers work-why not! 

    1Reply
  • Alex U.
    OP
    Investor · San Diego, CA · Member since 2013 · 94 posts · 32 votes
    3y
    Quote from @Bjorn Ahlblad:

    Single family with 4 ADU's is like a 5plex. Assuming it passed zoning etc I think it would be a maintenance and capex hog compared to a real MF.

    A real MF has all your tenants under one roof and gives you economies of scale. I think it would appraise lower and take longer to sell. But if the numbers work-why not! 


     All good points.  ADUs come in many shapes and sizes.  Our city, has passed a law that if you live in a transit area, you can build unlimited ADUs in Single family zoning, adhering to height limits, and floor to air (FAR). Here is an example of 32 ADUs under 1 roof.  Notice the single family homes next door.  This used to be a single family home with 7k sq ft lot.

    https://goo.gl/maps/HmeYVZh3Yx...

    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    3y

    @Alex U.I love San Diego! So that is an apartment building with 32 units built adjacent to the original SFR? Makes so much sense!

    1Reply
  • Alex U.
    OP
    Investor · San Diego, CA · Member since 2013 · 94 posts · 32 votes
    3y

    This one happened to have a bunch of single family homes built in the 50's built on land that was mixed use zone.  In return for the city allowing this much development, 50% of the units must be deed restricted for low income rent for 10/15 years.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    3y

    To add that many units outside of existing structure space, you would need to commit some units to affordable housing units.

    Therefore, the true MF if you can build it in as allowed by the zoning will produce the better cash flow in most cases.

    Note in both cases the value of properties with more than 4 units is based on NOI and cap rate. Because the ADU will be deed restricted to affordable housing, it is very likely to have the lower NOI and therefore be worth less than the traditional MF that does not have units committed to affordable housing.

    Good luck

    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    3y

    Are the low income units like 50% lower in rent compared the the regular ones? I'm not sure the high rent crowd would even want to live there?

    1Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    3y

    @Alex U. There are a lot of factors that go into that decision including location, total cost, initial capital required, holding cost, ROI, etc when choosing to go with a small multifamily vs a SFR and multiple ADUs. One potential challenge you run in to and I've seen it here in San Diego, if you are trying to sell a house with 3 or 4 ADUs who is your buyer and how quickly can you unload that property if you needed to vs a traditional 4plex. Buyers may not have traditional financing available to them to make that purchase and will be limited to some non-QM options at a higher rate or potentially a commercial loan so that limits the buyer pool vs a traditional 4plex. In some neighborhoods and price points it would be easier to find buyers than other areas. Finding a buyer for a larger development of 30-50 units form a developer that utilized complete communities/TPA would seemingly be easier.

    Just something to think about.

    Compass5122 Reviews
    WebsiteView Page
    2Reply
  • Mark Frattini
    Real Estate Agent · San Diego, CA · Member since 2014 · 338 posts · 176 votes
    3y

    Exiting from 4 unit would be easier than a SFH with 4 seperate ADUs. Plus you would miss out on some of the scalability benefit of a multi-family building.

    0Reply
  • Alex U.
    OP
    Investor · San Diego, CA · Member since 2013 · 94 posts · 32 votes
    3y

    This is an interesting video of appraisers view of homes with adus.  With the amount of adu construction, possibly the manner of appraisals may change down the road.   It appears Fannie is changing the parameters from watching the video.  https://youtu.be/UMeB9ZAvmmo

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free