Portland ADU vs. Multi?

18 Replies

Hi All,

I'm an investor from the Eugene area, looking to get started with investing in Portland (I just moved up).

My preference would be to find a solid multi property, but inventory seems to be very low in this category. I'm looking into the option of buying a single fam primary and building an ADU as a rental property on the lot, or turning a basement into an ADU.

Does anyone have experience dealing with the Portland ADU laws in this manner? Successes, failures, other thoughts?

Thanks in advance!

Taj

I had the similar idea building an ADU in my Irvington primary. Several reasons I abandoned this project. 1) The construction cost 2) Property tax 3) The resale value and exist strategy. Last time I checked with my architect, the construction cost in Portland metro including labor and materials, architecture fee and permits costs about $150 to $250 per sq ft depends on the finishing. Check with the zoning coz you might be limited by the density. Adding ADU will trigger your property value evaluation by the county which usually ends up increasing the property tax for next year. Calculate if the rental income can sustain the mortgage, insurance and the new property tax yet generating positive cash flow at the same time. Consider how easy to find a buyer if you want to sell it or do 1031 exchange. Not all buyers enjoy sharing same space with tenant non do they want to become a landlord. Is it going to be a long term investment or you will sell it in few years?

@Taj T. I have built them for other and myself... If you build them right they make a lot of sense. 

You should shoot for $100k for your build out with current financing and taxes you should pencil. 

I have done more adus than anyone else on portland last time I checked. 

@Kelvin Lee Thank you for the information, Kelvin. You're always helpful and knowledgeable in these areas. Yeah, that $/sq. ft. seems high - that wouldn't pencil out amazingly well. I have been trying to find properties that have a lot that would make sense to build an ADU on, instead of just trying to squeeze one into the backyard (ex: large side lot), to try to combat the issue of lack of privacy. It will be a long term investment.

Have you found that ADU laws in Portland are fairly reasonable for people in our situation?

@Derrick Aragon Thanks for the note, and $100k sounds like a more reasonable range.  What is the typical sq footage of the ADUs that you build?  Are they typically 2/1's?

@Taj T. I am not sure what you mean by "law" I am assuming you mean zoning code. 

You can put an adu in any R zoned property. 

adu is limited to 800sqft max or 75% of main house sq ft. you have to watch your lot cover if there is another dwelling ie detached garage. 

It is lined out through the city code and program guides. 

People do many different types. 2/1 is a good mix for rental. 

@Taj Tinsley Last time I talked to my realtor she used her Primary HELOC for building a 750 sq ft in the backyard at a cost about $150k. Though the interest rate of HELOC could swing as the Prime goes up. Another factors worth to mention are the vacancy lose and maintenance cost that entail in every turnover. That translate to you will have to pay the mortgage, insurance and utilities out of your own pocket which eventually affect the COC performance of the investment. 

I will vote for multi-family for getting my money leverage (OPM) from the bank with fixed terms as well as better financial safety net in case of vacancy and cost of maintenance.  

@Kelvin 

@Kelvin Lee Solid insights - much appreciated, Kelvin. I am leaning towards multi, too, unless I can find the right property with a lot that makes sense for an ADU (and the financials work out, per your note).

I'll be sure to stay connected on this - I'm sure I'll have some learnings from this process, too.

I built an ADU on my property and it turned out amazingly well. I own the main lot, purchased it about 3 years ago, the area surrounding me is multi family. Tore down my garage and built an ADU. It looks like a house next to my main house since it's on a corner lot, they have direct access to the street.

Umpqua Bank provided the renovation loan and are great to work with and allow use of renovation funds for an ADU. All they need is a quote from a contractor and they will give you the money.

If you'd like to build anything this year, you're already behind :) I started my design process in September 2015 and I was cutting it close. First, you have to find a knowledgeable designer to guide you through the process, get the type of ADU you want, finalize and push permits through the city. If you went fast, it would take 3 months.

Then, it's time to secure a builder, the good ones basically book up in Feb-March and the ones that don't charge exorbitantly high fees (I saw 10,000 for exterior painting on one quote...really?)

The ADU process is time-consuming, I lived next door and if I wasn't home all the time, mistakes that I couldn't take back would have been made. There are many decisions and it will eat your time.

That being said, all I had to do was front an extra $800 on my mortgage payments for about 8 months to cover the full cost of the renovation loan, max out some credit cards to pay contractors between the time the bank reimbursed me for costs, and now I'm cash flowing $800 on the property after renting it out.

I am eyeing properties to do this again on, but it's going to be rough to find just the perfect candidate.  If you find the perfect property, the numbers REALLY tie out for ADUs.

You should shoot for securing a property now and doing an ADU project in 2018 for new construction, 2017 for a conversion.

What I'd look for:

- Big Garages - garages can be turned into ADUs as long as no external walls our touched

- Corner lots for new construction - This is the most ideal

- Basements - I've seen some basement conversions that really work well.

It's such a niche market that you should have seen about 10-20 ADUs in real life before making any sort of investment decision.  It's amazing how many different styles can be accomplished with a small space and loopholes (lots of vaulted ceilings because that doesnt count towards sqft space)  Research here: https://accessorydwellings.org/category/projects/

Above all, go on an ADU tour, there should be one upcoming in May: https://accessorydwellings.org/adu_tour/

@Dan Drazba Really great information here - thank you, Dan!

Can I ask why you ended up tearing down the garage to build the ADU instead of using the existing structure/framing? Just curious.

I really enjoy working with Umpqua Bank too, by the way. They have some great loan programs and MLOs.

This other question just popped into my mind.. does anyone have experience building an ADU on the lot of a multi family dwelling? Wondering if 1) this is allowed and 2) what the allowed structure details are (sq footage, etc)?

Yeah, @Taj T. , the garage was about the size of a large shed (Maybe 250 Sqft) The new ADU is a two story unit, almost the size of a full house - half bath downstairs full bed/bath upstairs. I'll PM you the address to give you an idea.

Hi @Taj T. ! I'm new to BP (and REI) - I own one home in Portland, bought in 2013. Just thought I'd chime in, as I sought out and bought a home with an already finished, semi-separate, basement apartment, which I've been renting out since I purchased the home.

I now rent the whole home as two separate units, even though the downstairs tenants share a back landing with the upstairs tenants (i.e. they can't "lock out" the upstairs neighbors) and the tenants all share the downstairs laundry room. 

I've had great success with the basement unit - if you want to chat #s, feel free to PM me!

Originally posted by @Taj T. :

...does anyone have experience building an ADU on the lot of a multi family dwelling? Wondering if 1) this is allowed and 2) what the allowed structure details are (sq footage, etc)?

 An accessory dwelling unit is "accessory" to a main dwelling.  Another unit at an existing multifamily isn't "accessory;" it's another unit.  At least, it is according to the city.  

If you add a unit to a duplex, you then have a triplex, and all units will be subject to the commercial building code, meaning you'll need to add $prinklers. (Duplexes fall under the city's "residential" building code.) Also, adding a unit to a MF won't get your SDC waived like it would for developing an ADU at a SFR.

If you want to add livable space to an existing duplex-4-plex, for example in a basement, you might have better returns by expanding the existing units (convert 2/1 to 3/2, for example) and/or adding rentable storage rooms than by adding one unit.  

One thing you could do if you find the right property in the right zone is, you could subdivide a lot and then build a SFR + ADU on each lot. That will get you a higher density than if you try to build a MF building in the same zone.

I second @Dan's recommendation to go on the ADU tour. You would probably also benefit from Kol Peterson's ADU workshop: http://pdxadu.blogspot.com/

Account Closed, thank you so much for the great information.  This info and background will be really helpful for me in evaluating what my next step will be!

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