Can you BRRRR with an unpermitted ADU? Will the appraiser call it out? What if the contractors did a great job? Is this a gray area? I have a client who wants a home, its been flipped, there is a 1200 SF adu, its one room, with bathroom, wants to build out walls and kitchen without permits... and then wants to BRRRR. Its for a long term rental. I am telling him BRRRR wont work most likely since it is not on the tax records as 2 SFR on the same lot. Also a detached garage is there with 1 bedroom that we could convert into 3rd ADU.. this is in San Diego county
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
The current ADU regulations includes a provision for an unpermitted structure being converted to an ADU (SB13). Basically it dictates that such a structure would only need to address items related to health and safety. This policy is in effect only for 5 years.
Therefore my suggestion is your client first determine exactly what is required to get the existing ADU converted to a legal, permitted ADU. Ideally this can be done at a reasonable cost and results in significantly more value than the cost.
The current regulations allow a JADU, an ADU, and the original SFR. Therefore, the 3 units is not an issue.
I suggest both you and your client research the 6 existing CA ADU bills. Currently a jurisdiction can mandate a property with a JADU have a unit on the property be occupied by the owner. I expect this restriction will be eliminate within a year but there is some risk assuming this.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
The current ADU regulations includes a provision for an unpermitted structure being converted to an ADU (SB13). Basically it dictates that such a structure would only need to address items related to health and safety. This policy is in effect only for 5 years.
Therefore my suggestion is your client first determine exactly what is required to get the existing ADU converted to a legal, permitted ADU. Ideally this can be done at a reasonable cost and results in significantly more value than the cost.
The current regulations allow a JADU, an ADU, and the original SFR. Therefore, the 3 units is not an issue.
I suggest both you and your client research the 6 existing CA ADU bills. Currently a jurisdiction can mandate a property with a JADU have a unit on the property be occupied by the owner. I expect this restriction will be eliminate within a year but there is some risk assuming this.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Joe Vahedi Every project I've done with recently added units has had some level of difficulty with appraisals - I have had to go out of my way to prove that the additional unit is permitted and compliant with zoning in order to qualify it with the underwriter and the income from it.
Lenders and underwriters can speak to the details better than I can, but I would be VERY cautious about assuming a building with an unpermitted unit (even if typical for the neighborhood) would appraise with that unit included. At this point, there's really no reason not to permit the thing, unless he's got a really funky situation - the rewards are high and the costs are low.