I have a duplex (one is a two bedroom) and the second is a gutted two bedroom which I am considering turning into a one bedroom and a studio. My gut tells me that it will be more profitable as a rental and for resale having three vs. two units... am I wrong?
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
A JADU only works if the owner lives somewhere on the property. That's likely a bad idea.
If you legally convert it into a triplex, then double check with a lender because the guidelines change. There is actually a bigger pool of buyers for duplexes than triplexes because the lending guidelines are easier.
One thing to keep in mind with studios is that they may have higher turnover, which increases your vacancy costs. I've been fortunate to have the same tenants for almost two years (will be in August), but I have had clients where they get a new tenant every year.
Generally speaking, yes, if you legally convert and have three permitted units, it could increase in value. You need to see what the triplexes are selling for and compare it to the cost of actually doing the conversion. Is it going to be separately metered? Are you adding a full kitchen and bath? These things can play a role.
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
3y
@Melanie Middien you have a duplex, it will always be a duplex. It doesn't matter if you try and split the other one. If it's not done legally, it's still a duplex. For resale and lease value keep the two bedrooms.
With the new ADU laws I legally can squeeze in a Junior ADU. I am working with the planning department now to legally convert the larger bedroom to a studio replacing a window with a door (among other things). Same footprint, just different layout.
Per section 8, a two bedroom in LA voucher pays $2666 vs a one bedroom pays $2096 and a studio $1380-1840 (possible income of $3476-3946).
With the new ADU laws I legally can squeeze in a Junior ADU. I am working with the planning department now to legally convert the larger bedroom to a studio replacing a window with a door (among other things). Same footprint, just different layout.
Per section 8, a two bedroom in LA voucher pays $2666 vs a one bedroom pays $2096 and a studio $1380-1840 (possible income of $3476-3946).
Am I missing something?
Thanks!
Melanie
You missed what I said. "If it's not done legally?" Sounds like you are doing it legally.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
A JADU only works if the owner lives somewhere on the property. That's likely a bad idea.
If you legally convert it into a triplex, then double check with a lender because the guidelines change. There is actually a bigger pool of buyers for duplexes than triplexes because the lending guidelines are easier.
One thing to keep in mind with studios is that they may have higher turnover, which increases your vacancy costs. I've been fortunate to have the same tenants for almost two years (will be in August), but I have had clients where they get a new tenant every year.
Generally speaking, yes, if you legally convert and have three permitted units, it could increase in value. You need to see what the triplexes are selling for and compare it to the cost of actually doing the conversion. Is it going to be separately metered? Are you adding a full kitchen and bath? These things can play a role.
Adding a full kitchen and bath. Since the income is better, it might help an owner/occupant get financing. In the area, there are a lot of investors who might strictly look at the income. I will look into separate meters though as the return on investment will be worth it.
Unfortunately, JADUs can only be done on single family properties, so right away, if you have a duplex, a JADU isn't going to work legally (unless there is some local ordinance in your jurisdiction that has found a way around the state law -- if so, that would be great).
Otherwise, the owner occupancy requirement that @Rick Albert mentioned is another reason to avoid JADUs if you can.
There may be alternate ADU-related development options for your property (e.g. one attached ADU per LA City ordinance, a detached ADU duplex per state law) but it doens't sound like that's what you're looking for.