Triplexing of single family homes in CA

11 Replies

Hello all,

I am deciding between selling my single family home in Long Beach, CA in order to purchase a multi family property and using a cash out refinance to build an ADU and junior ADU. I currently have about 55% equity in my home which would net me about 220k(assuming a Loan to Value ration of 80%) and converting my attached garage(400 sq ft) into a junior ADU and then building a free standing ADU in my backyard. I was wondering if anyone had any experience with "triplexing" a single family residence, I wanted to know what some best practices are when doing so, such as whether separate meters will be worth the added cost, what is the down time between permits and construction and lastly what is the actual cost. I have gotten different things online in regards to cost to build and I am assuming that 220k would be enough to cover the costs of the garage conversion to a junior adu and also the building of a free standing structure adu but again I have many questions about this process.

I am torn, because I was really set on selling my home to start house hacking with a multi family property, but the idea of "triplexing" also works out well as far as the numbers are concerned and my mortgage would still remain relatively inexpensive. Added bonus I would not have to move. Please give tips on ADU and junior ADU's in California, or if multifamily is your preferred method why not ADU's and junior ADU's.

Best

Weighing the pros and cons

Originally posted by @Jose Leanos :

Hello all,

I am deciding between selling my single family home in Long Beach, CA in order to purchase a multi family property and using a cash out refinance to build an ADU and junior ADU. I currently have about 55% equity in my home which would net me about 220k(assuming a Loan to Value ration of 80%) and converting my attached garage(400 sq ft) into a junior ADU and then building a free standing ADU in my backyard. I was wondering if anyone had any experience with "triplexing" a single family residence, I wanted to know what some best practices are when doing so, such as whether separate meters will be worth the added cost, what is the down time between permits and construction and lastly what is the actual cost. I have gotten different things online in regards to cost to build and I am assuming that 220k would be enough to cover the costs of the garage conversion to a junior adu and also the building of a free standing structure adu but again I have many questions about this process.

I am torn, because I was really set on selling my home to start house hacking with a multi family property, but the idea of "triplexing" also works out well as far as the numbers are concerned and my mortgage would still remain relatively inexpensive. Added bonus I would not have to move. Please give tips on ADU and junior ADU's in California, or if multifamily is your preferred method why not ADU's and junior ADU's.

Best

Weighing the pros and cons

Jose,

In general, building an ADU is the most cost-effective way to create a new rental unit in the LA area.

However, there are two considerations you may have overlooked:

I may be mistaken, but I don't think a JADU can be built from a garage. I've heard that it has to be contained within the "envelope" of the house, which usually means the exterior walls of the house. I've also read the JADU must be converted from "habitable area," which doesn't include garages, I think. There's more info here:

https://planning.lacounty.gov/...

Secondly, as I understand the ordinances, you can't rent a JADU unless you're occupying the house. If can rent both a house and an ADU without occupying either, but if you have a JADU, you must live on the property to rent it out. That won't be a problem now, but if you ever move and want to hold the property, you'll be facing a dilemma.

I recommend you talk to an ADU specialist about your situation. Specifically, I'd call Avi at Levi Design & Build (https://leviconstruction.com/). He's extremely knowledgeable and will be able to clear up any confusion on the permitting front.

I'm house hacking a duplex just south of Hollywood and work mostly with clients who are looking to house hack. The advantage to house hacking a multifamily is that everything is already built and permitted. There's no constructions costs and risks around permitting or delays.

Also, since April, single-family home prices have skyrocketed while multifamily prices have merely risen. You might do well to sell your house as a house, then buy a multifamily.

Just my two cents! Good luck!

Best,

Jon

 

@Jon Schwartz

Thank you so much for the useful tips.

I think you are correct, my home could work if I make the garage an ADU and then convert my family room into a junior adu, the only thing is that I would have to build a second bathroom and I would imagine that would be costly.

I have been looking into units in the Long Beach area specifically which is where I live. There is just a very small supply of multi families that are within my price range.

I think you make a great point about how single families have been skyrocketing which is why I had decided to sell mine until I stumbled upon the triplexing of single families.

I will call your adu specialists to see how much the cost would be exactly. If I can refinance, convert into adu and jadu and keep some cash it might be the best strategy. If however I can find some value in units I will go that route.

Best

@Jose Leanos After having been through the experience of building and renting out an ADU on a single family lot, I would say it was a good learning experience, but probably not the best use of capital. The cash on cash return can be really good for ADU to the money you spend on building the ADU, does not transfer well towards equity in the property. I think you'll see better returns in multifamily, even if you have to partner to get into a property.

Hi Jose, I've designed and permitted ADU's in Long Beach and you cannot build a JADU from an existing garage and you must owner occupy the property where a JADU is proposed - as another person already mentioned. The city of Long Beach is fairly ADU friendly (they allow 2 story ADU's) and the plan check approvals I've been experiencing are about 2-3 months due to covid-19. Construction costs vary depending on the condition of the garage (mainly existing structure, foundation and distance of sewer run) and the JADU costs will also depend on how much structural modifications will be required to separate the unit. If you'd like to discuss further and have any other questions feel free to give me a call and I'll be more than happy to chat. I may be reached at 562-338-1235

@Eriverto Espinoza

Thank you so much, after reading into the details I found out way more specific information about LB ADU and jadu rules.

I would still like to chat about my specific structure, I have an attached two car garage that sits right next to the main sewer line. I will give you a call tomorrow to discuss details.

Best

Jose

Originally posted by @Jose Leanos :

@Matthew Forrest

Hey Matthew thank you for replying, I was wondering if you had time to discuss some of the costs and time frame associated with your ADU?

I converted a structure that was neither the garage, nor the main house so I think I had some additional saving on top of what a garage conversion would be. I paid about $70/sqft for a 700 sqft ADU. I would be careful about what the salesmen tell you, since they dont get paid unless they convince you to do the project. Personally I do the house hack in the main house and rent out the ADU to maximize revenue. It depend on the layout of the property and the neighborhood that you're in, but I don't love garage conversions. They're kind of small and I think people end up paying too much money per sqft vs building new.

The timeline really varies by your project scope, who's running the project, and how good the city is at responding in a timely manner. I would say 6 - 18 months. 

Hello Jose,

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.

Hey @Steven Nguyen :

Thank you for replying, do you mind sharing their contact info with me. I recently read about a realtor that was able to complete his ADU in Los Angeles for relatively cheap because he subcontracted every single step of the construction process and got different quotes for every job. Since I will be living on the property I feel I can take this approach and be a bit more hands on. So the more contacts I have the better.

Best