BRRRR - Buy, Rehab, Rent, Refinance, Repeat

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Sean Oliver Jr
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Convert basement into ADU or another unit?

Sean Oliver Jr
Posted Oct 27 2022, 11:48

My wife and I are currently looking at townhomes in DC. Every house that we're looking at has the zoning code that allows for a second unit. Would it be more beneficial in terms of equity when we go to refinance to put an ADU in the basement, or turn it into a duplex? Most houses that we're looking at are currently 3 bed and 1-1.5 bath with the below grade space allowing for 1 (maybe 2 with a tight squeeze) bedrooms and a bath. Any help is greatly appreciated!

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Joaquin Camarasa
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Joaquin Camarasa
  • Real Estate Agent
  • Springfield VA
Replied Oct 28 2022, 11:11

It all depends on the cost of one or the other. 

You would need to determine how much would it cost to fully turn it into a duplex and also go through the permitting needed. It takes a long time in DC but if you live in it as you start the process could be doable. 

Make sure to check basement ceilings and the feasibility of adding egress windows in basement. 

Check how much duplexes have sold to calculate what yours could sold for if you were to sell it today and based on that you should be closer to the answer you look for. Another option that can give you good info is to check the comps for sold basement units in case you only sell the basement in the future and keep the top or viceversa.

Real Estate Agent Maryland (#5005383), DC (#SP200202941), and Virginia (#0225 240670)

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Jack Seiden
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Jack Seiden
  • Real Estate Agent
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Replied Oct 28 2022, 12:09
Quote from @Sean Oliver Jr:

My wife and I are currently looking at townhomes in DC. Every house that we're looking at has the zoning code that allows for a second unit. Would it be more beneficial in terms of equity when we go to refinance to put an ADU in the basement, or turn it into a duplex? Most houses that we're looking at are currently 3 bed and 1-1.5 bath with the below grade space allowing for 1 (maybe 2 with a tight squeeze) bedrooms and a bath. Any help is greatly appreciated!


 Assuming it’s zoned for a duplex, the regulations for a duplex and adu are extremely similar if not the the same, usually an adu is just a legal duplex that is only allowed by owner occupants where a duplex can be used regardless of if it’s a primary residence. But that’s more of a zoning issue than a construction one.

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Russell Brazil
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Russell Brazil
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ModeratorReplied Oct 28 2022, 12:28

Adding an ADU is substantially easier than a multifamily coversion. In each case zoning must allow it, but zoning on ADUs is available in many more locations than a multifamily conversion. The process for ADU is also substantially quicker. However, your total value is higher with multifamily.

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Reid Chauvin
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Reid Chauvin
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Replied Oct 28 2022, 12:38

@Sean Oliver Jr - looking at it from a cash-out refinance standpoint, you will be more limited in the equity you can tap into if you convert it into a 2-unit (75% Loan to value) than if you keep it as a 1 unit (80% Loan to value). Also, the interest rate pricing on 2-units tend to be less favorable than on 1-unit properties. 

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Sean Oliver Jr
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Sean Oliver Jr
Replied Oct 28 2022, 12:44
Quote from @Joaquin Camarasa:

It all depends on the cost of one or the other. 

You would need to determine how much would it cost to fully turn it into a duplex and also go through the permitting needed. It takes a long time in DC but if you live in it as you start the process could be doable. 

Make sure to check basement ceilings and the feasibility of adding egress windows in basement. 

Check how much duplexes have sold to calculate what yours could sold for if you were to sell it today and based on that you should be closer to the answer you look for. Another option that can give you good info is to check the comps for sold basement units in case you only sell the basement in the future and keep the top or viceversa.


I appreciate your help! 

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Sean Oliver Jr
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Sean Oliver Jr
Replied Oct 28 2022, 12:46
Quote from @Reid Chauvin:

@Sean Oliver Jr - looking at it from a cash-out refinance standpoint, you will be more limited in the equity you can tap into if you convert it into a 2-unit (75% Loan to value) than if you keep it as a 1 unit (80% Loan to value). Also, the interest rate pricing on 2-units tend to be less favorable than on 1-unit properties. 


Though I am worried about how much I can pull out, I'd be more concerned about what's the total equity I'd have in either option. Are duplexes typically worth more than a house with a basement ADU?

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Sean Oliver Jr
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Sean Oliver Jr
Replied Oct 28 2022, 12:49
Quote from @Russell Brazil:

Adding an ADU is substantially easier than a multifamily coversion. In each case zoning must allow it, but zoning on ADUs is available in many more locations than a multifamily conversion. The process for ADU is also substantially quicker. However, your total value is higher with multifamily.

Though it may take longer and cost more, I’d definitely want more equity if the numbers work. I appreciate your help!

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Sean Oliver Jr
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Sean Oliver Jr
Replied Oct 28 2022, 12:51
Quote from @Jack Seiden:
Quote from @Sean Oliver Jr:

My wife and I are currently looking at townhomes in DC. Every house that we're looking at has the zoning code that allows for a second unit. Would it be more beneficial in terms of equity when we go to refinance to put an ADU in the basement, or turn it into a duplex? Most houses that we're looking at are currently 3 bed and 1-1.5 bath with the below grade space allowing for 1 (maybe 2 with a tight squeeze) bedrooms and a bath. Any help is greatly appreciated!


 Assuming it’s zoned for a duplex, the regulations for a duplex and adu are extremely similar if not the the same, usually an adu is just a legal duplex that is only allowed by owner occupants where a duplex can be used regardless of if it’s a primary residence. But that’s more of a zoning issue than a construction one.


 It’s in a RF-1 zone that allows for up to two dwelling units.

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Russell Brazil
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Russell Brazil
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ModeratorReplied Oct 28 2022, 16:34
Quote from @Sean Oliver Jr:
Quote from @Jack Seiden:
Quote from @Sean Oliver Jr:

My wife and I are currently looking at townhomes in DC. Every house that we're looking at has the zoning code that allows for a second unit. Would it be more beneficial in terms of equity when we go to refinance to put an ADU in the basement, or turn it into a duplex? Most houses that we're looking at are currently 3 bed and 1-1.5 bath with the below grade space allowing for 1 (maybe 2 with a tight squeeze) bedrooms and a bath. Any help is greatly appreciated!


 Assuming it’s zoned for a duplex, the regulations for a duplex and adu are extremely similar if not the the same, usually an adu is just a legal duplex that is only allowed by owner occupants where a duplex can be used regardless of if it’s a primary residence. But that’s more of a zoning issue than a construction one.


 It’s in a RF-1 zone that allows for up to two dwelling units.


Pretty sure you can not do an ADU in RF-1. ADU's I believe are limited to only R Zones (not RF or Mu) except R-19 and R-20 I think. Check with DCRA on that.

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Martin Smith
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Martin Smith
  • Realtor
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Replied Nov 18 2022, 08:16

Not sure if you've found a place yet, but one thing to keep in mind: DC has very strict laws about the "English basement" apartments you're referring to, specifically the minimum height of the ceiling, which has to be 7 feet or greater. They also must have two forms of egress and be permanently severed from the upper unit with real ceilings and walls, not just a door that's locked at the top of the stairs, for example. If it's a new conversion, you'll need an inspection by the city to verify these things to get a Certificate of Occupancy, which is required for your rental license. The penalties for renting an unlicensed English basement can be severe, and every tenant in DC is eligible for free legal help if they find out they're in an unlicensed rental. 

Often, the properties that have a "finished" basement with a rec room and a bathroom that is not a separate unit are set up that way because they don't meet one or more of these criteria. The cost to "dig out" a basement can be extremely high in DC, even if you're only going a few inches to get to seven feet. Any good realtor in DC has a tape measure in the car for this reason!  

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Eric Teran
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Eric Teran
  • Architect
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Replied Nov 20 2022, 21:01
Quote from @Sean Oliver Jr:
Quote from @Jack Seiden:
Quote from @Sean Oliver Jr:

My wife and I are currently looking at townhomes in DC. Every house that we're looking at has the zoning code that allows for a second unit. Would it be more beneficial in terms of equity when we go to refinance to put an ADU in the basement, or turn it into a duplex? Most houses that we're looking at are currently 3 bed and 1-1.5 bath with the below grade space allowing for 1 (maybe 2 with a tight squeeze) bedrooms and a bath. Any help is greatly appreciated!


 Assuming it’s zoned for a duplex, the regulations for a duplex and adu are extremely similar if not the the same, usually an adu is just a legal duplex that is only allowed by owner occupants where a duplex can be used regardless of if it’s a primary residence. But that’s more of a zoning issue than a construction one.


 It’s in a RF-1 zone that allows for up to two dwelling units.


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Eric Teran
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Eric Teran
  • Architect
  • Alexandria, VA
Replied Nov 20 2022, 21:08

I hit the reply button before typing anything. Anyway, the RF-1 zone requires a completely separate unit. This is significantly more than an ADU. The new unit will need the following: Fire sprinklers, separate electrical meter, separate heating/cooling, 1-HR fire separation between units, own exterior door, no interior connection to the upper unit, egress windows for the bedrooms, and a minimum 7' ceiling height. Once construction is done a certificate of occupancy is required. In DC this type of project for a new investor is around $125k to $200k. There are a lot of things that will affect the cost. The biggest one is if you have to drop the slab to obtain the ceiling height. The great news if you can afford it the new unit can become its own unit and you sent rent or sell it off independently of the other unit. This is a condo conversion. Good luck and let me know if you have any other questions.

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Tim Jacob
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Tim Jacob
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Replied Dec 2 2022, 08:13

@Eric Teran

This last post was informative.  I really like the note about the underpinning. I found costs can really get up there and get even worse if you have certain types of preexisting foundations that are common in old buildings as many in DC and other east coast cities have.  Where I looked at adding units in other jurisdictions they said they needed the entire building upgraded with sprinklers instead of just the one unit that is being added.  It seems either case you are looking at street construction to upgrade the preexisting water line diameter for fire flow from the street which will be a decent amount if you need to reroute traffic.  Based on a need for housing are places giving variances on this as well as voiding the need to run new fire flow lines in the other preexisting units.  It seems at minimum they should be reasonable about the other units.  Can you get around the street line upgrade by putting a hot tub sized tank somewhere like a fire pond and cistern in rural areas or being close to a hydrant with a siamese connection like in commercial.  It seems everyone is complaining about a lack of housing in certain places it seems they are willing to bend on atleast firecode but not others.