About a year ago I purchased a duplex in North Oakland and have been successfully house hacking it. The upstairs units rent pays the mortgage and a little extra, so I'm really only on the hook for a portion of the taxes and insurance, and that amount is a net decrease from what I was previously paying in rent. If I stopped house hacking and just rented the whole building it would cash flow at conservatively $12k/yr. My plan when purchasing the building however was to ultimately development the basement into a third unit and turn the building into a triplex. Before finalizing the purchase I called the planning department and spoke to them of potential plans and they confirmed that I was able to do that and the building was zoned (I think RM-2?) which allows for that. An architect that I recently sold something to on craigslist spoke to me about it just out of curiosity and said that due to location adjacent to the freeway and close to bart, it would likely qualify for some sort of transit oriented density bonus, possibly allowing me to build even more units (though logistically I'm not sure how I would add more than a single unit without dramatically altering the structure of the building by raising it or something similar). 

The building has dirt floor basement with a ceiling height of 8' 4" and runs the entire dimensions of the house making it about 1,200 ft2. My understanding is that basement units must have a minimum floor to ceiling height of 7'6". Assuming a 4" concrete slab for floor and a 1/2" of gyp board for the ceiling that would effectively give me a height of 8' 1/2" which acceptably checks that box. There are some structural considerations with the way the previous owner dug out the basement to achieve that height, so I've engaged with a structural engineer to work those out and have a visit scheduled for the middle of December. 

I'd like to keep some amount of storage area in the basement for water heaters, maintenance equipment etc. so am targeting roughly 1,000 ft2 of habitatal space and a 200 ft2 maintenance room with no finishes. Using ROM construction costs of $250/ft2. Is that a reasonable cost projection given a mid range rental unit target? I'm actually thinking this is somewhat on the conservative end given that I will be most likely be GC'ing the project and self performing some amount of the rough and finish work myself and with personal contacts. That gives me a rough project cost of $250k. Tentatively planning to finance through some combination of a professional income and a HELOC, which will then be refinanced into a more permanent debt structure upon completion and leasing.

Wondering if anyone here has any experience with type of project and could give me helpful insight into potential pitfalls, lessons learned, professional contacts (looking for an architect experienced in these types of builds currently if you know one let me know!), or really anything you think might be useful in this endeavor. Thanks!

I have an RM2 property and the planning dept stated that my lot size would not accommodate a third unit.  Do you have enough sqft on your lot to accommodate a third unit?  I believe you need 2500sqft per unit.  

Hi @Stephen G. , Yes, there is a state density bonus but it is intended for large multi-family developments that devote a certain percentage of the units to affordable or senior housing. You can read about it here:
http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=65915.&lawCode=GOV

It's quite likely that your zoning limits the ability to add additional units. For most residential zones in Oakland, a conditional use permit for an additional unit can be obtained if your lot area is above a certain threshold. If it is, and you meet all other zoning requirements, there is a unique ordinance in Oakland that allows mini-lot subdivisions, meaning you could build a new home on a new fee-simple lot that you could then sell or rent. 

Alternatively, you can create at least one ADU (Accessory Dwelling Unit) and perhaps a Junior ADU on your property. This will yield the best ROI, especially if you can build within the existing envelope of your basement. Until just a couple of weeks ago, ADU's were not permitted on multifamily properties in Oakland however, a series of state assembly and senate bills were signed into law that requires local governments to permit such development, regardless of your zoning density limitations. There are several advantages to ADU development, including reduced fees and expedited permitting.

I'm an architect who also owns a duplex in North Oakland and I'm designing an ADU in the existing garage on my property utilizing the new state law governing ADUs. I'm quite familiar with ADUs, including all of the new ADU laws that you can take advantage of, so send me a dm if this is something you are interested in and would like to learn more.

@Calvin Kwan , yes, RM-2 zoning requires a minimum of 7500 square foot lot to add a third unit. I would suggest you look into utilizing the state ADU law too since zoning density requirements do not apply. Feel free to contact me if you would like to know more about how to optimize the potential of your property.

Great to hear that ADU restrictions have eased to allow MFHs! Fantastic news.

@Eric Baldosser Thanks for the insight. I'll send you a DM with more specifics about my project. I actually work in affordable multifamily housing so am aware of the density bonuses afforded to affordable and age restricted developments, but that is not my objective here. The architect I spoke with seemed to think that its location along and proximal to a transit corridor would grant its own density bonus allowing the additional unit/units in excess of what the 5,000ish ft2 lot would allow. 

All that being said, can you help me understand the difference between what I've mentioned, an ADU, and a junior ADU?

Originally posted by @Stephen G: 

"All that being said, can you help me understand the difference between what I've mentioned, an ADU, and a junior ADU?

 @Stephen G The difference between what you've mentioned, an ADU and a junior ADU is this: A conditional use permit to add a third unit (not ADU or JADU) may be granted only if you can show that you meet all of the zoning regulations for RM-2. Alternatively, you can take advantage of state land-use code, which permits an ADU and/or Junior ADU, regardless of local controls (such as density limits).

See this link for the California Dept. of Housing and Community Development ADU info. This document differentiates between ADUs and JADUs. Note that a few of the more onerous requirements are superseded by new state legislation. 

In other words, depending on your lot and existing building configuration, it may be more expedient to build an ADU and/or JADU, especially now that state law streamlines the permitting and reduces or eliminates fees. You may even find that you can build an ADU and/or JADU in the basement, plus another unit in the back yard. Even if it's something that you're not planning to do now, it's good to know your options so that you can strategically set yourself up for future phasing. I regularly provide property analysis to help owners determine the highest and best use for their lot. Let me know if this is something that you would be interested in.

@Stephen G    

One additional thing to consider if you get to much pushback from the city is utilizing the basement more as a storage area to generate income. Less headaches and I guarantee you the "basement tenant" won't complain :-) .  We all know there is a drastic shortage of (affordable) housing here in Oakland.....I will also say that there have been countless posts here on BP and other forums about tenants that readily will rent out a basement unit to live in and the (sometimes) unique challenges that come with it.    Keep all your options open my friend.