Value Add Flip, ADU vs Dwelling Unit, San Diego, Imperial Beach

[Benjamin Mavity]

Hey everyone, I'm looking at a potential value add deal for an investor. Fix/Flip or Fix/Build/Flip in this case. I'm an agent and I work primarily with investors finding deals in the SD. I sent my client a listing (still working on sourcing off market deals). The listing is a fixer in Imperial Beach, which is its own municipality inside SD, with it's own zoning, etc. According to their site the lot is zoned for commercial and/or multi family with a density of 1 DU/1000 sq ft. The lot is 7400 sq ft so 7 Dwelling Units allowed with base zoning and at least 1 ADU. Existing improvement is a single family home, 2/1, 744 sq ft and we want to add another detached 2/1 in the rear where it has direct alley access. So after build, 2 units, detached, each 2/1 and around 750 sq ft.

Here's my question(s) should the investor build the new unit as an ADU or a full on detached Dwelling Unit? Would building it as a full dwelling unit add more real/appraised value than an ADU? Will it be easier from a permitting/regulatory perspective to go ADU or DU? Will building an ADU be cheaper? If you build a permitted detached ADU on home with 1 SFH will it be classified as a multi unit after the build or just a single fam + ADU? We want to reach an ARV in the range of the duplex's in the area, so I'm thinking it may be better to go full unit but it may be faster/cheaper/easier to do it as an ADU. I know that's a lot of questions so feel free to answer any, all, or none. Usually I'd spend the next 24 hours buried in building code, detaching from reality as I'm played the soothing sounds of being on hold with the city. I'm still going to, but I thought I should reach out to the BP network since I listen to their podcasts everyday. Thank you!

[Justin R.]

@Benjamin Mavity Yeah, there's basically no reason to build a traditional DU in a multifamily zone if you can accomplish your goals with an ADU.

The challenge in parts of IB (and other coastal areas) is often whether you can get the product you want -- unit size and height -- under the 30' coastal heigh limits.  If you're outside the coastal zone, it's way less of an issue.

As a general comment, I will add this, based solely on what I've learned in my life journey (put as much or little weight on that, given you don't know much about me): "Real Estate Developer" is a professional position as projects get larger.  There's no such thing as having money and investing in a project to build a bunch of units and hiring fee-for-time consultants to do it for you (or your client).  There are two questions with these projects:

1. What Should be Built Here?

2. Should we Build it?

Most people go straight to the question What Can be Built Here? which is interesting, but most people don't appreciate the difference between that question and #1 above.  They don't know what they don't know.  From an investor perspective, the two questions above are the only ones to focus on.

My friendly advice is just to help your client understand this difference -- they'll thank you for it eventually.  "Can I" is an easy question to answer.  "Should I" is exceedingly more important, more difficult, and more valuable to answer.