Dirty Secret of ADUs

[Ramon Wilson]

I am doing a BRRR on a triplex and wanted to add an ADU to maximize the value of the property. I was told by the lender that if I add the ADU the property will no longer qualify for conventional financing. SFR's that add an ADU do qualify, but duplex, triplex or 4plex that add an ADU do not qualify for a conventional loan. Seems like a big con to adding ADU's on 2 to 4 unit properties. Is this correct?

[Dan H.]

https://selling-guide.fanniema...

By rule Fannie/Freddy does not allow ADUs to be added to duplex to quad. However, I have seen that zoning and associated permits are often not checked. ADUs added to SFR zoned property in an area with many duplexes to quads, is often treated as a duplex for appraisals and financing. Similar duplex that has added an ADU can be treated like a duplex when it comes to financing.

So rules do not allow duplex with ADU to get F/F financing, yet theses properties are not always identifies as such. At some point these rules may be enforced more stringently. It is definitely one of the risks associated with adding ADU(s) to duplex to quad.

This issue is not just a potential issue when refinancing, but could also be an issue when selling.   Typically properties that cannot get F/F financing sell at a significant discount.  

Good luck