Properties with ADUs

Oakland, California
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Properties with ADUs

DJ Cespedes
Attorney · Oakland, CA · Member since 2019 · 27 posts · 22 votes

Hi All, 

I have been putting in offers on Multi-family units in Oakland, CA for the past few months now without much luck. Im using FHA and my offers have been beat out with Cash or Conventional offers outside of my budget. Given my current budget, im at a disadvantage when competing for multifamily units, so im rethinking my strategy.

I have now been looking at SFHs with ADUs, bonus spaces, or spaces with potential to be converted to an ADU (ex: garages); although I would prefer a home with an already built ADU as that would save money in having to convert. I have come across several SFHs that fit this bill. The issue is, many of the homes I found with ADUs are done without permits. I do not want to run into an issue where I buy the home and then im unable to obtain the permits, or have to tear down the unit because it is non-conforming.

I also dont want to run into an issue where I purchase a home where there is a nice size garage only to find out that I cannot legally convert it to an ADU for a variety of reasons.

I have called the County Planning Dept, but they were not much help in providing any clarification. In fact, they probably just confused me even more. 

If I am unable to obtain traditional income producing property (duplex, triplex, fourplex) right away, then id like to get something that can still produce income and eventually cashflow. Aside from income, I also want to build equity in my property which is another reason why I am considering properties with potential to add a legal ADU or get retroactive permits for non-permitted work previously performed.

Does anyone here have any experience with homes with non-confirming units, or converting space into ADUs?  Should I just steer clear of properties with non-permitted units? Any insight would be helpful.

Thanks! 

DJ 

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Account Closed
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
7y

The county planning department won't get you anywhere. GO visit the City of Oakland Planning Department. They are actually pretty helpful. Ask for Aubrey Rose, he leads the department. Bring in a list of addresses and pictures if you can. They can google map the addresses and let you know what is vs what isn't possible. Anything they can't answer they will refer you to the Building Dept which is 10 feet away. 

Go either first when they open (8AM) or closer to 2PM. Avoid Wednesday mornings. 

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  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    7y

    The county planning department won't get you anywhere. GO visit the City of Oakland Planning Department. They are actually pretty helpful. Ask for Aubrey Rose, he leads the department. Bring in a list of addresses and pictures if you can. They can google map the addresses and let you know what is vs what isn't possible. Anything they can't answer they will refer you to the Building Dept which is 10 feet away. 

    Go either first when they open (8AM) or closer to 2PM. Avoid Wednesday mornings. 

    6Reply
  • DJ Cespedes
    OP
    Attorney · Oakland, CA · Member since 2019 · 27 posts · 22 votes
    7y

    @Account Closed This is what I needed! Thank you! 

    2Reply
  • Hans Christopher Struzyna
    Real Estate Broker · Oakland, CA · Member since 2015 · 67 posts · 51 votes
    7y

    Hi @DJ Cespedes, You absolutely need to go into the city to talk to them. However, you should ABSOLUTELY not bring address and photos with you as @Account Closed suggested. By bringing addresses and photos into the city you run a very serious risk of turning the owners for a permit/code violation. If you end up doing so, you have materially damaged the sale and the Seller has a serious legal claim against you. Unpermitted ADUs are a really serious issue in Oakland right now and you don't want to get caught up in the middle of it. I had a client who got turned in for this several months ago and it was a huge mess. Your agent should be able to coach you through this conversation. 

    Generally, you want to ask very, very vague questions like:  "If I were to buy a house that has _____ (explain the situation), how could I go about legalizing it? " They will ask for a specific address but you must not give them one. 

    When you ask City for info, make sure you get the language that defines what an ADU is and is not. That way, you can go back to the structure and look at it for yourself and see if there are any clear/ obvious discrepancies between what is there and what is written. Also, ask the seller for any drawings, plans, or documentation from when they built the unit. As well, you will want to find out if the ADU was built from the ground up or if it was a converted shed/garage. If it is the latter, having the original structure built with permits is important because that can exclude you from the modern setback requirement among others.

    If you have more questions, DM me and I'm happy to chat further. 

    1Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    Or....... Buy an SFR that has a backyard.... and put a Tiny House on it. I know of someone who is in the 94621 area code who did that and is killing it on AirBnb. He's very up front about the type of area the property is in and he advertises The Tiny House as an experience.

    As an FYI I am house hacking a duplex in Deep East Oakland that I bought 3 years ago. You should also look at loopnet. That’s where I found mine.

    1Reply
  • Joe Aamidor
    Rental Property Investor · Bay Area, CA · Member since 2018 · 29 posts · 15 votes
    7y

    @DJ Cespedes we were actually under contract to buy a home with a huge basement that would have made a great second unit - just had to add a kitchen and bathroom but the numbers looked good even with that investment. The house itself had a lot of issues which is why we walked. 

    I agree that there isn't much in the way of traditional duplexes, so your strategy makes sense. That said, given how busy contractors are these days, the bigger risk may be biting off a bigger project than you initially wanted (takes too long/longer than you want). 

    As for the city, when we were under contract I called the planning dept to understand the steps and they were very helpful, even over the phone. It sounds like there are two steps - the first is just to review your plans, and then the second is more of a real inspection and permit process. But, your contractor would probably do a lot of this. While Oakland is very tenant friendly, they also seem to be very ADU friendly (though some might say these positions are in conflict...)

    We've also thought about AirBNB as an option but it seems like Oakland has some pretty strict rules there - and I haven't really begun to learn about them all. But this is a great area for Airbnb just from a demand point of view. 

    0Reply
  • Joe Aamidor
    Rental Property Investor · Bay Area, CA · Member since 2018 · 29 posts · 15 votes
    7y

    @Brian Garlington your point about building an ADU is good. I know there are even modular ADUs that can be less expensive.

    Do you know if a newly built ADU sharing the property with an older home is subject to rent control? My understanding is that new units built after 1995 (I think 1995) are not subject to rent control by state law. So, a new ADU that is freestanding could be considered new, but it also could be considered an extension/addition to the existing property (which in Oakland, is probably not that new). Just curious if anyone knows!

    0Reply
  • Andrew Maxion
    San Francisco Ca · Member since 2020 · 30 posts · 17 votes
    6y

    Hi @DJ Cespedes@DJ Cespedes@DJ Cespedes@DJ Cespedes@DJ CespedesAgreed. Multi-family units are extremely competitive here in the Bay Area where it’s hard competing with investors who have the capital to purchase these units right away or simply put higher offers.

    I've heard cases for non permitted units being reported to the city/county. I would definitely stray away from the idea because it can cause a major headache down the road. If the city finds out not only they will have you to demolish the non-permitted ADU but they will ask you to have the ADU professionally removed which can be easily $10/sqft.

    However, some cities or counties have amnesty programs for unpermitted ADU projects. Don't believe Oakland does. That may be a better place to focus https://www.sanjoseca.gov/business/development-services-permit-center/accessory-dwelling-units-adus/adu-amnesty-program


    Every SFH is now effectively a duplex (or a triplex) that would align with your strategy, without the headache of fees on converting an illegal unit. The beauty of going with this route is it is less competitive and if you are planning on living in the residence then you can take advantage of using a FHA loan and have the tenants pay down the existing mortgage and ADU!

    Hope this helps and glad to discuss more!

    1Reply
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