City Building zoning is R1, county tax roll says Duplex ?

Question

Hi, I am buying a house in California as an investment property. This house is located in a single family house zoned area, but with a separate 1 bed/1bath unit in the back attached to the front house. The front house is a 4 bed/2 bath house. I am looking for buying a duplex, but in our city, the multi family housing area are really not good area though. Some decent multi family duplex is easily well above $900k. This one is listed for $730k, I think this might be a good option.

So I did some research, then I got this weird results:

1. city building records has a bedroom, a bath addition, permitted work. It didn't say it was a 2nd story addition. The addition was done on 1977. Would the city ask me to tear it down if they saw it. But the work was inspected by the city, how come the city didn't see it was a 2nd story addition?

2. The 2nd unit kitchen was unpermitted for sure. Would the city ask me to tear it down if they know it?

3. The most odd thing is that the county tax roll says it is a duplex with the correct numbers of rooms and baths. (Not sure about kitchen, the county didn't release the info to non-owner). It means the property tax is paid correctly over the years.

4. The house changes hands several times. The appraisal always included the 2nd units in the value. So my lender says I will be fine with my loan just because the tax roll says it is a duplex, so the lender can count 2nd unit's income. If the tax roll didn't say it is a duplex, even if the 2nd unit is rentable, the lender will not count its income. It seems the lender didn't care it is permitted or not, it just follows the tax roll. Is my guess correct?

So right now, I got so confused: am I buying a duplex or not? Whose authority will be higher: county tax roll or city building department? Should I buy it as an investment? What is my risk? Would the county assessor change it back to single family house? Could I legally rent it to 2 different family? (The worst case, I plan to move in, then rent it out to get a roommate in the 2nd unit since the house is located in a very nice area.

Please help me with your experience and knowledge. Very appreciated.

Jo Zhou · Answer

Hi, Justin, I just pulled the county records: it said that it has 2 kitchens, it says it is a deplux with 2 units. Numbers of rooms match the rooms in the house. The current family had elder people living in the unit since they bought. The neighbor knew the 2nd addition was permitted, the kitchen was added on later. (Not permitted)

I think it will be fine if we live there and rent the 1/1 unit out. Probably nobody will complaint. But if we rent it to 2 different families, I don't know if it will be fine.

I plan to put my mother in law in the 1/1 unit and rent the 4/2 unit 2000sqft out because I love my current house and hate to move. Not sure if it will be easy to rent a 2000 sqft house in that area. Since you say you only buy 0.75 of the house price, which means there will be almost nothing in the market meeting this criteria except you are a guru.

Since you don't recommend waiting either, I want to good use of the capital, too. What should I do now?

Justin R. · Answer

Allied Gardens is not that old. I expect you'll see the structure is permitted (or permittable) but the kitchen (and probably bath) are not.

1. I am fine with taking that risk, but I would discount the price compared to a legal duplex. Before I buy something like this, I do two things: (A) Pull the building records from the County, as you mentioned and (B) Investigate historical City record at the Historical Society archives - this may tell you how long ago people started living in that unit separately.

2. "LT BnH" = "Long Term Buy and Hold"

3. Total opinion, but I wouldn't recommend holding your breath waiting for "another down turn" here locally. At the moment, I am lending money rather than scouring MLS. I have and will continue to buy opportunistically when something attractive comes to my attention.

4. Don't treat your primary residence as an investment unless you have to (or want to). If you want a granny flat so your MIL can stay with you, buy a property that has one for that reason - not because it's a good use of your capital.

5. If the monthly scheduled income from a property here locally is less than 0.75% of the purchase price, it's very unlikely to be worth purchasing for me as a BnH.

Jo Zhou · Answer

Hi, Bruce, it is nice to know you are in San Diego and have similar house. I believe your house does look like the one that we are looking at now. The utility and address cannot be separated. This is a drawback compared to a normal duplex.

Bruce May · Answer

@Jo Zhou it sounds like my home is very similar to the one you are looking at. The guy we bought the house from built a legal addition which serves as a granny flat. It's attached to the main home. It does not have a kitchen, laundry or separate utilities. If I add a kitchen to it, it would not be permitted, but I could then rent it out and would have to include all the utilities in the rent. The house you are considering might be in the same situation. Also, my home is R1 but the county shows the proper bedrooms and bathrooms but they don't list it as a duplex. If I decide to move and rent both units I would have to include the utilities in the rent for both units since I can't separate them, which is the only way I think it could work.

Do you have separate utilities for the houses?

Jo Zhou · Answer

@Carrianne Mucho: Thank you very much that you explained to me how such thing could happen. I wonder if the city building department lost its records, whose responsibility it would be. I am pretty sure that they lost some important records when they converted paper records into microfilm. For example, the city didn't have any work permit for my current house which was built in 1967. Luckily, a large addition were permitted and have records in 2004.

For the house that I am working to buy, there is no floor plan to the addition, they only have site plan for the addition, so it is so hard to tell it was a 2nd story addition. I feel it would be impossible to get approved without a floor plan. It passed the inspection, it was hard to say there was no 2nd floor because the added bathroom was in the second floor. The city had to see it in the 2nd floor, but without any records showing that. Whose fault it was?

I plan to go to the county assessor office to find out more info. Waiting for seller's release form, otherwise, it won't release any records to non owner. I have been to city building department, not any luck. I didn't find anything useful.

Jo Zhou · Answer

@Mike Abramowitz, city zoned for R1, it is the county assessor records say it is a duplex. Which one has the final opinion on this property?

Also, the addition was permitted. The kitchen was not. Did it make a difference? I think, tearing down a kitchen and rebuild is much cheaper than tearing down the whole unit and rebuild. Today, if build a 1bed/1bath unit, it will cost $180k around.

Jo Zhou · Answer

@Justin R.

Hi, Justin, I am very appreciated that you spent time to answer my questions. Since we are in the same city and you are so experienced with this kind of odd property. Could you help me a little more? I could tell you the property is in the del cerro/allied garden area, where are usually single family home, no duplex zone at all.

I got what you said: as long as I keep quiet, neither city or county will come to bother me to tear it down. The risk is fine to take, right?

Could you explain what is LT BnH for $730? What does LT BnH mean? Do you think a duplex at this price is too expensive to invest? You could see the multi family houses now, nearly none of them will be cashflow in San Diego. And the most multi family home are not in the good area, if they are in the good area such as ocean beach, north park, they will be over $900k at least. Could you give me some more advice in investing in multi family home in San Deigo? Lots of people in here say San Diego are so hard to find cashflow, so they invest for appreciation. This property at this price could be break even, this is almost what I see the best. (At least not negative.)

Should I hold on to wait another down turn?

What kinds of properties are you looking for? I am looking for granny flat because my mother in law will come to live with us. I am looking for something that could solve our current issue and could be an investment in the future.

However, almost 90% of those granny flat were not properly permitted. Kitchen was always added on after inspection. Its value was not reflected in the tax roll, so the income will not be counted. This is one that could be included for some odd reason.

Jo Zhou · Answer

@Mike Abramowitz, city zoned for R1, it is the county assessor records say it is a duplex. Which one has the final opinion on this property?

Also, the addition was permitted. The kitchen was not. Did it make a difference? I think, tearing down a kitchen and rebuild is much cheaper than tearing down the whole unit and rebuild. Today, if build a 1bed/1bath unit, it will cost $180k around.

Justin R. · Answer

@Jo Zhou These sort of zoning-related oddities in our City is my niche - I've purchased, renovated, re-permitted, re-zoned, varianced (that's not a word, but it works here), and dealt with code compliance ... there's a lot of different interactions between various city and county departments to understand. To answer your questions:

1. The City trumps the County. If the work was unpermitted and the City has reason to care, they can make you do lots of things, including tearing it down. That's an unlikely outcome.

2. The burden of proof is on you. The second unit may have been built in 1920 - doesn't matter. If you can't show that it was properly built and when it was built, it'll have to conform to current code (again, if the City has reason to care).

3. The County couldn't care less - they're not gonna come in and re-classify it as an SFR. They just want the property taxes paid.

Without knowing which area of the City you're talking about, I can't provide more specific opinions. But, the reality is it's very unlikely you'd run into problems. The City wants denser housing, it takes a lot of resources to go after home owners with non-conforming property, and it's just not in the interest of anyone to do so (unless you've got an angry neighbor). There are many, many areas of the City where what you describe (smaller back units) is normal and was oringally done.

My personal approach: if the unit(s) are not atypical for the neighborhood, and there's not health and safety issues involved, I'm happy to accept the risk and operate the investment.

That said, I can't think of a duplex I'd buy anywhere in the city for LT BnH for $730k unless I could re-develop the property.

Good luck!

Carrianne Mucho · Answer

Regarding the conflict in use vs. zoning, if the second unit was built and permitted a long time ago, the zoning could have changed since then and it may have been "grandfathered." This means that if it existed before zoning disallowed such use, the city would not expect an owner to tear it down to conform to current code. Your best information would come from a visit to the Assessor and Building Department...they will answer your questions and it may take a few hours perhaps but worth it to have accurate answers to your questions. I would also ask if it were to burn down at some point, could it be rebuilt as such? You can try calling these entities but it could take awhile for them to respond and you may not get a thorough answer. For the information you seek, I think a visit in person would be worthwhile to get immediate answers. Best of luck!

City Building zoning is R1, county tax roll says Duplex ?

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