Adding an ADU to a West LA 4 plex

[Alfred Moon]

Researching adding an ADU to a 4 plex in West LA and have a few questions about the process:

1. Anyone have a recommendation on ADU contractors who can take care of feasibility/permitting, design, construction, etc?

2. Was planning on financing with an existing HELOC, but the HELOC is on my primary residence. For legal purposes, should I get a HELOC on the investment property itself? Spoke to a few lenders already and it is possible, but with a higher rate. I'd like to know if it's necessary or strongly recommended.

3. When we first purchased the property two years ago, we had the tenants sign annual leases which stated they'd have garage parking. The ADU will replace the garage but the leases have expired and the tenants are all month-to-month. I'm assuming we will need to offer some sort of concession to the tenants? Or not?

Thanks in advance!

[Dan H.]

as was mentioned, the more than 4 units would change to commercial financing. Commercial loans are valued on NOI and cap rates and could result in the property being worth significantly less than as a residential property based on comps. Also commercial loans have worse terms (shorter term, higher rate, often lower LTV, etc) than residential Loans.

As you are likely aware, your units are rent controlled. AB1482 prohibits substantial change to lease terms. Your area can have more stringent rent control requirements. However, AB1482 has a rehab/upgrade criteria. I suspect adding an ADU may qualify. IMO this is a gray area because tenants could occupy units for this upgrade, but it is substantially changing the lease terms. The AB1482 clause for no fault lease termination for rehabs/upgrades is 1 month rent. I would suspect this is worse case scenario.

I would start by negotiating a rent reduction for loss of garage.  If they are unwilling to negotiate a reduced rent for loss of their garage, I would resort to the no-fault payment.  

Good luck