What is the added value of a roof top deck

Question

We live in San Diego, Ca and have a small multi family property. The current detached garage is getting turned into an ADU (1 bed/1 bath) and has a flat roof. We are going to add a roof top deck (the same size as the unit (about 425 sq feet). It’s all getting permitted and legit, so my questions are:

1. Does that increase the appraisal value when we refi (currently doing a brrrr)?

2. We were planning to rent it for about $1,700 before the roof top addition, how much more should we be able to ask (it will have 1 dedicated parking spot, all new interior/exterior, jacuzzi)?

Thanks!

Robert Myjak · Answer

@Kenneth Donaghy it’s over in Normal Heights.

Chris B. · Answer

Consider the additional liability also.  Make sure you have good insurance to cover that party up there where someone gets tipsy falls off.

Axel Meierhoefer · Answer

@Robert Myjak I live in San Diego county myself and it all depends on the view. If you re looking longer term, which really is an important aspect of your own goal setting, you would want to consider if you see that property to stay in your ownership long term or not. You probably saw that the county just reaffirmed the commitment to creating more living space using ADU's. Still, I think you want to ask:

If I don't keep this property long term, will I want to sell it as an investment property or for owner occupy ownership? I know a lot of my friends in the county who do not go for the ADU option because someone in the family does not like to have another person or couple living that close or on the property.

I can see that that is also a possibility in Dan's example. If the area is not something like Ocean Beach and you try to sell to a family, the ADU might not get much consideration in an appraisal.

I know I keep writing this here on BP, but its really important to be clear about your goals and your strategy.

There are scenarios where the value is irrelevant if you make great cash flow. In others, it is the one thing that drives your decision making.

You know the answers. Just ask yourself the right questions. If you like to chat about it, let me know. I am only a few miles away...

Steve Morris · Answer

If you want to do a roof top deck, get it engineered real well.  These leak more often than not and moisture invasion can be a real b****.

Even with some decking you'll need to punch some holes in the roof and walking a roof flexes it and makes small holes bigger.

Maxwell Ventura · Answer

@Robert Myjak

The deck isn't technically adding Sq. Ft. but will it raise the value of the home? I would lean towards Yes. It should also bump up your rents. 👍🏻

How much of an increase in value will you get? Hard to say because of the many variables. Location of the home?, How good of a view? How big of a deck? Appraiser's will vary on their opinion. Comps may or may not be hard to find for this sort of thing.

People's opinions will vary on this, but personally I am a big fan of adding a deck. And it doesn't have to be an extension out back to an extended view, or an additional rooftop story. It could be as simple as a front porch. Overall they are low in cost, and I believe ad a great return. Harder to quantify though.

Hope this helps.

Dan H. · Answer

I appear to be the contrarian.  It is my view that unless the deck has a view it will add less value than the cost of the deck.  If it provides a view then that is different scenario and likely will add value.  The extent of the value depends on the quality of the view.  View of water (ocean, bay, lake, etc.) will add more value than a view of city lights but they should both provide value.

I am interested in the BRRRR aspect with regard to the ADU.  A protégé of mine recently sold a SFH with ADU.  The appraisal on sale did not hit the agreed upon selling price.  Selling appraisal are significantly less conservative than refinance appraisals.  I hope you did your research on the value of ADUs reflected in refinance appraisals (typically significantly below hands off construction costs).

Good luck

Kenneth Donaghy · Answer

@Dan Heuschele, I’m only was comping rents. ADU appraisals are unique. And shouldn’t be compared to multiple units. No tricks, There are helpful strategies to help with appraisals.

Dan H. · Answer

>There’s very few comparables in my area for something like this (with an ADU), but there were decent comps on properties that have 3 units.

I have concerns if you are trying to comp a triplex to a SFH with ADU.  Maybe @Kenneth Donaghy has some appraisal tricks, but an appeal that attempts to use a triplex as a comp to SFH with ADU is very unlikely to work.  A triplex has freedom that an ADU does not (such as STR).

Hopefully the ADU was not the primary value add and that you purchased below market price.

Good luck

Axel Meierhoefer · Answer

@Robert Myjak Sounds good. I think you have a good plan. Depending on the overall cost yu might be OK to have a combined appraisal of the main house and the edition and I always strongly recommend to be onsite when the appraiser visits. That way you can ask how they see ADUs. Some recognize both the value and the intentions of the government in the region and some seem to think it is either not really a big deal or potentially a detriment to the overall value. Also, don't forget that you can ask for a second appraisal. Some people have looked at me as if I am strange or weird, but everybody in appraising and inspecting will tell you that there is a substantial amount of interpretation of the rules, both when it comes to which properties to compare to as well as the valuation of improvements in your property. I compare it to a second opinion when you suspect an illness.

You might run into a little bit of an issue with the lender, but in my experience, when I offer to pay for a second appraisal it has not been problematic. If you think about the values in our area, spending another $500 for a second opinion could be well worth it.

By the way, the same is true for lending. I had a huge struggle with the first lender of my property in Escondido and then did some research and found one that was way more flexible and worked several times faster than the first one.

In one of the training events I attended years ago, someone said something really important that I feel applies here as a reminder:

"We are running the show (regardless if you do your investing with an LLC or not). We are the CEO of our operation. Acting as the CEO means we make the executive decisions and we decide who we work with, how many opinions we consider, who our final lender will be, etc."

Be the CEO of your deal! - that has helped me a lot when sometimes feeling I am pulled in all kinds of directions.

Robert Myjak · Answer

@Axel Meierhoefer  We are planning to keep this as a long term rental and we’re going to live in that unit (with the roof top) for a year or two. We’re not going to cash flow for a few years, but we’ve planned on that.

The reason I care about the appraisal is because of the cash out when we’re done with our construction next year, so we’re trying to maximize our ARV (which is hard in our area, especially with an ADU).

We’re super excited though about the ADUs and TIny House on Wheels (THOW’s), and definitely looking to take advantage of that for all the rentals we can acquire (but we won’t do that for flips). Thank you!

What is the added value of a roof top deck

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