Question for Lenders - ADU Financing - CA - LA - 4 unit SB9

[Alan Asriants]

My partner is a builder in the LA area and his client posed an interesting question for him that could affect financing in the future. 

He owns a 4 unit property in LA and wants to convert the 2 car garage into an ADU. With the addition of the ADU would the property be now a 5 unit property or a 4 unit with an ADU?

The concern here is the financing. Will he and potential buyer of the property be subject to Commercial financing or will the property still qualify for residential 4 unit and under loan types/primary?

From my understanding a single family with an ADU still classifies as a single family, NOT a duplex.

Another question would be, if he subdivided the land using SB-9 and built a duplex or another single family on the new lot, is financing, cash out refi, etc the same as if you built on an empty lot?

Thank you!

[Dan H.]

Quote from @Sasha Mohammed:

Fannie/ Freddie does not like multi-family with ADU. "why?" you ask? good question. they didn't have an answer for me when i asked either. they just don't want them.

SFR with ADU is no problem. but if you're considering adding an ADU to a multifamily property, consider the limitations you're creating on your back-end buyer if you decide to sell, or your own financing if you choose to refi.

I'll also add that guidelines change over time. just because they don't like it now doesnt mean they wont decide later to be okay with it. 

That does not match what I believe the rules state. Single ADU on duplex or triplex is allowed for non-commercial f/f. However, The requirement for single adu seems seldom enforced on duplex if it stays below 5 units. ADU on quad pushes out of the non-commercial F/F. Multiple ADUs on any is not allowed, but I have only heard of it being an issue in SF zoned areas or if unit count hits 5.

If you want to be sure of getting non-commercial F/F follow the rules.  You may be safe to get non-commercial F/F adding up to 2 ADUs to a duplex even though by rule this does not qualify (in my area I have never heard of this being an issue).  Recognize if you are relying on non enforcement of rules, you are taking on a risk (investing is largely about calculated risks).

Enforcement may vary by location but should not.  My view is the rules should be consistently enforced.

adu-fact-sheet.pdf

Property Type / Eligible Properties
• One ADU is allowed on 1-, 2- and 3-unit properties.
• An ADU on a 1-, 2- or 3-unit property must comply with the
zoning and land-use requirements in the jurisdiction in which
it is located. The zoning compliance must either be legal,
legal non-conforming or locations with no zoning.
–Exception: An ADU on a 1-unit subject property that does
not comply with the zoning and land-use requirements
(illegal zoning) may be eligible under certain conditions.
• ADUs that are manufactured homes are allowed under
certain conditions.

Good luck