All Forum Posts by: Colin L.

Could you build an ADU or convert garage into an ADU?

@Greg Dickerson thanks! That all makes sense. If I have contingency that is 10% of the construction costs in my budget can that affect the banks required reserve amounts?

@Andrew Faukner getting a single family build to pencil out as a rental will be tough in CA, maybe if you include an ADU it works better. I think you have he right idea, OZ's are a good fit for development projects, although at bigger scales than SFH.

I have some questions about getting a construction loan from a bank for ground up development. Typically a bank will want the investor/developer to have a certain amount of money as "reserves" that is in addition to the down payment. Are these reserves placed in an escrow account during construction? Or does the investor simply need to show that they have reserves somewhere in their accounts? If so, do the reserves need to be in cash or can it be in another asset such as stocks, IRA, or real estate? For the investor providing the reserve, should they expect a return on that money? Thanks in advance for any help!

Agreed, it could cost more to do the ADU. Maybe not that much more depending on what you were thinking of gross floor area. Instead of building a 2300 SF home, you could do 1500 SF home +800 SF ADU.

My thoughts:

-2 months seems like not enough time to split a lot.  At least here in San Diego County your looking at way longer to process a lot split.  

-Overall I love the idea of splitting the lot. Are ADU's allowed where you are? If so, to really max the value you could split the lot and each lot could have a single family home + ADU. As an architect, you are in a unique position to really make the most of the property.

-What about selling your current home and using proceeds towards the new project?

Yep, new thing that I'm not exactly an expert on but attempting to learn more as I have property located in an opportunity zone.  The basics are that by investing capital gains into an opportunity zone fund, the taxes on the capital gains are deferred until the end of 2026.  In addition if the investment is held for 7 years, the taxes on those gains are reduced by 15%, and the best part is that if the investment is held for 10 years then there are no capital gains on the appreciation of that investment.  The IRS says it much more eloquently than me:

https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

@Mike M. They could reinvest the capital gains into an opportunity zone fund.

The price per SF can be manipulated a lot for small mixed used building like this.  For instance, as you've described the building w/ commercial on 1st floor and residential above, the housing section of the building code considers the 2nd floor to be the "ground floor" which by code must be accessible, so you would need an elevator or ramp up to the 2nd floor.  However if you included a small studio apartment on the first floor then only the first floor is required to be accessible and no elevator is necessary for the 2nd floor units.  Elevators are really expensive.

2nd point, you mentioned 4-5 units on 2nd floor.  Your 2nd floor is only required to have 1 means of egress if it is 4 units or less.  If you bump it up to 5 units then you need 2 means of egress.  1 stair is less expensive than 2.

3rd point depends on what type of use you want for the commercial space.  If its just an office or similar use, you could possibly designate the space as a live/work space, which is considered residential under the building code (ch 4). This simplifies the building b/c there is no need for a commercial sprinkler system and less expensive requirements for fire separation as the building is all one use.  restaurants would not work w/ the live/work codes.

Of course this is all dependent on which building code you are using, this is mostly based on the IBC as well as Fair Housing.  Hope that all makes sense. 

@Jian G.  City Council did in fact vote 8-1 to eliminate parking minimums when located in a transit priority area.  There will be a second vote sometime soon.  Of course there is plenty of push back and some votes may flip but I think it will still pass.  

https://timesofsandiego.com/politics/2019/03/04/san-diego-city-council-votes-to-repeal-minimum-parking-requirements-for-new-housing/

Here is map of the transit priority overlay:

http://sandiego.maps.arcgis.com/apps/webappviewer/index.html?id=fee2c61136d7469b9d633301899df706

Funding projects that are 100% affordable is very difficult. IMO the better alternative is to build a project that is market rate and includes 10-20% affordable which will allow you to use the State Density Bonus to increase your density by up to 35% (50% in City of San Diego) so for instance a property that allows 10 units can be increased to 15 units .  The base zoning must allow at least 5 units to do this.  You also get other incentives like reduced parking, and deviations from zoning such as increased FAR, building height, etc.

One more thing to consider when looking for sites is to look for properties in the new Opportunity Zone, which has a lot of great tax advantages.  There are a lot of OZ's in San Diego.