Build second home on multi-family lot that already has one house?

Question

Hi All,

I am brand new to real estate and am looking to house hack instead of rent. I want to buy a single family on a lot zoned for multi-family (e.g. up to 2 units) and live in one portion while renting out the other. Is this a good idea? Here is an example of a property that might work:

https://www.redfin.com/CA/Los-Angeles/8342-Reading...

The city told me that the imaginary second unit can be 32'x27' and up to 33 feet in height. I'm thinking of doing a pre-fab home to minimize the cost to carry the property before it can be rented out. Can anyone help me analyze this scenario?

Thank you in advance!

Kevin Danikowski · Answer

Hello All, I'd like to revitalize this forum. @Ethan Cooke , I was planning to do exactly what you stated at the end, one of my units are currently airBnB'd and I was thinking of adding a detached unit, considering them as "together" and AirBnBing the second one as its own unit even though the lease is technically for both units (lease to my own building by my own company that is). Any thoughts on Insurance or liability issues that may occur?

Also, @John Einarsen , did you have any luck finding out more information about this?

Thanks in advance for any info.

Also, @John Einarsen , did you have any luck finding out more information about this?

Thanks in advance for any info.

Ethan Cooke · Answer

@John Einarsen House-hacking is a great way to minimize your housing costs. I recommend that you look for a home that either has an In-law/ADU already built into it or a part of the home which you can convert to an In-law/ADU (e.g. extra large garage or large storage area with reasonable ceiling height). It will be significantly cheaper to build a small second unit if it's inside the existing structure vs. building a new structure. If I were buying my home in SF over again, I would definitely do this since it provides the flexibility to rent out one or both units. If you live in an area popular with tourists or business travelers, you can likely rent out one unit as a short-term rental and cover most of your housing costs.

John Einarsen · Answer

Hi Mike and John,

Thanks for this feedback! This was a home I was interested in purchasing. I already spoke to the city and they confirmed I can build a second structure and stay compliant with local zoning laws. However, it's interesting to hear that it would potentially be a poor investment.

My main goal is to house hack a property that will pay for itself through rental income while I occupy a small portion of the property (e.g. the top floor of the second unit that I would build).

I got a quote from "Giant Shipping Container" homes for $250k for a 2,000 sq foot, three story structure that may be a decent option for the second unit.

Do you recommend I that I instead build a large addition onto the existing home to maximize potential rental income and simply design the addition to allow for a separate living space for my wife and I to feel like we have our own lives compared to the renters on the other side of the wall?

I deeply appreciate all the insight!

Mike Wood · Answer

@John Einarsen You will need to confirm that you can have two separate building on the same lot.  Most of the time, multifamily units need to be a single building or connected buildings in residential areas, your location might be different, but needs to be confirmed.  Also, any type of construction loan would be difficult to do if you have an existing mortgage, which sounds to be the case.  Also, you will almost always reduce your value per sq foot when adding a second unit, which depending on your cost to construct the second unit, might be a deal killer.

John Knisely · Answer

Hey John, first off wow, that list price! I am not used to seeing California prices. What are the approximate rental comps in this area?Yes, househacking is good idea instead of just straight renting I'd say! As long as the place you buy is reasonable, it gives you some leeway on needing a good deal vs a great deal I think. You'll be there to take care of emergent issues and learn the ins and outs of landlording.Great that you checked with the city first. Prefab/tiny home is definitely not a bad idea, keep the costs down and the cashflow up if you are planning to live in it. It may actually be a better long term investment to go the traditional home route depending on what your rental market expects though.

Build second home on multi-family lot that already has one house?

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