Buying property mid ADU permit

11 Replies

I’m looking into buying a property from flippers who bought a 3/2 on an acre of land for $400k. They built it into a 4/2 with a 1/1 and a studio. They say that the ADUs buildings are permitted, they just didn’t get the permit completed as ADUs. 

I like the investment as everything is new so it doesn't require much extra capital to make it move in ready. My only concern is that it's not actually in the final stage of ADU permit and I'd have to spend a lot of money to re-do the structure and/or permit.

Is there a way to request what step they are on the the permit process, the permit manager contact with the city... etc to ensure it’s not going to be a money pit? 

Any advice would be greatly appreciated! 🙏🏼 happy holidays! 

Hey 

@Vi Nguyen - I'd check with the building department to see if they might be able to give you a quick sense on what needs to be brought up to code from the permitted structures - that's usually what is being checked as ADUs are being up-permitted from just additional structures on a property. In general, an ADU is just an additional, self-contained living space with at least a kitchen and bathroom.

In terms of the cost of the components to bring the ADU up to code, you'd have to check with a general contractor to give you a cost assessment on that.

I don't know your "ADU permitting requirements" but it sounds "off" that the add'l units are permitted, but Not as an ADU.

1) check the status with bldg felt as suggested

2) add a clause or make verification/satisfaction with permit/ADU status as a contingency in your contract.
 
If the sellers are up and up they should be cooperative with this. 

@Vi Nguyen Is the 1/1 the ADU or the studio? It would be helpful to know where you are located, but I would recommend that if your intention is that you want to rent out livable space in the 4/2, 1/1 and the studio then you want all of the structures to be permitted as dwelling units. If two of the three are already permitted as dwelling units and the third is in progress, that's fine as long as you can understand that is possible to complete the ADU permit and what the costs and time are associated with finishing. I would contact the city about where the permit is in the process and try to get information from the seller in writing (if its not in writing it's worthless). I like Wayne's idea about the permit status contingency.

If you choose to buy the property knowing that its not permitted to rent, but end up doing that under the radar, the city can come make your life difficult. Good luck and let us know what you end up doing!

@Vi Nguyen What city are you in? As others have said check with the building department to see what permits are completed as well as if any are in process. There are only a couple of options if the dwellings are truly permitted. Either they were permitted as Accessory Dwelling Units (ADU or JADU) or the property is zoned multifamily and they built additional dwelling units on the lot. Of course you can do an Addition on the house and add bedrooms/offices ect. and this would not count as a dwelling unit but as an expansion of the current home. The permits should be able to reveal all of that information.

Thanks everyone! I’m also curious, would it be possible to split the parcel into 2 and add another house? Any resources would be greatly appreciated! 🙏🏼

@Kevin Chen  We are waiting to hear back from the county. I did find a contractor who is looking into the permits and suggested we get a soil engineer to make sure the septic will be sufficient. 

@Wayne Brooks the seller countered with the buyer verifying the permits. Sounds like they don’t have the original permits. Our realtor says these would all be a part of our physical inspection. Should the permits and conditions turn out to be less than expected, we could renegotiate. 

@Matthew Forrest turns out, it's permitted as a 5/3 house (1/1 is permitted as a ‘hamshack'). The studio was once the 3 car garage. They left one car garage parking space and converted the other 2 spaces into a studio. This would be the ADU. I just need to verify the ham shack is a habitable dwelling unit. Could the home inspector tell me this? If it is, I would airbnb it. It's located in Vista but pertains to SD County.

it's in Vista but is technically a part of SD County. It's zoned for SFR.

I suspect the primary residence expansion was permitted but not for an additional unit.  I suspect the garage conversion is unpermitted.

With current ADU rules, you may be able to get both permitted as ADUs. The "hamshack" (never heard that term prior) as a JADU (assuming it has its own entrance) and the studio as an ADU.

The issue is that the JADU will require owner occupancy (OO). I have not seen that you were planning on occupying the property. Regardless, this will limit exit options. You will either not be able to rent all units when non-OO or you will need to sell to a house hacker which may make it harder to sell and therefore may reduce the price.

Another option, that has risk, is you rent the units without them being permitted units.  In some areas of San Diego this is a very common practice.  My guess is more than half the properties in City Heights have unpermitted units rented out.  The more prevalent the practice, the less likely I would think of enforcement.  Could you envision each property in City Heights with an unpermitted unit being forced by the city to boot the tenant?  I think it is extremely unlikely.  However, if you were in Poway, La Jolla, RB, Del Mar, Coronado, etc. I would think an unpermitted unit may have significant risk of code enforcement.

During due diligence, you need to examine all the permits to determine what is legal.  They likely will not let you make copies of the permits, but a stealth photo from your phone would provide you a record (wonder how I know this?).  

This information would allow you to proceed with full awareness.  My own belief is that a property with unpermitted units should purchase at a discount due to the risk of the units being shut down by the city/county.  However, I suspect the odds that the unpermitted units are shutdown is not high.  Price the risk into any offer.  You should definitely be paying less than appraised value due to the risk.

I have some experience in unpermitted units (not in Vista, but a city very close to Vista) if you want to PM me.

Good luck

@Vi Nguyen I heard you mention septic? How much land is there? ADU's can trigger needing larger septic tank and leach fields. This can be a problem if there is not a lot of land. There are work arounds from what I understand (ATU's) that can use much less space. But I have heard they can cost $20-40k and have annual maintenance fees in the hundreds of dollars. Something to consider.

@Dan Heuschele one contracting company only saw the original 1950 permit for a 1300 sqft 2/1. The building dept from the county told me today that there are no additional permits since the original permit, other than a  detached garage (studio). He said to call the county assessor to get the residential building record (which can only be requested by owner). 

The 1/1 has a separate entrance, but it’s not attached to the main house, so my understanding is that it wouldn’t qualify for JADU.

I do plan to live there, but plan to move after a couple years so this, and other things (such as utilities of hamshack being included with main house), is an extra pain. Which is why I was thinking of airbnb-ing it.

I do see the pros and cons of unpermitted units, and it’s seems to be very common practice. At this point in time, I’d prefer permitted units to mitigate risks. I’m mostly just concerned about the hamshack not being legally habitable. 

@David Frandsen 1 acre. I think that’s why the contractor suggest we hire a soil engineer. We found a county record stating something about the septic not being adequate so I wanted to be sure I’m not getting myself into a money pit in order to get the septic up to code for all units. But I am considering splitting the land in the future to build, so I’ll be sure to ask the engineer about this. 

Thanks everyone for your input! I’m not as familiar with SFRs and ADUs so this has been a bit of a learning curve. 🤓🙏🏼

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