FHA Loan, ADU, Section 8 Question

[Alex Ballesteros]

I just purchased my first property (SFR) back in November 22' and I am soon to be starting the construction process of an ADU garage conversion in the back, and i was wondering if I can live in the ADU once it's built and apply to be a Section 8 landlord so i can have a Section 8 tenant live in the main house?

Also, would the ADU have to be legally permitted? Would it be possible to have it non-permitted?

[Dan H.]

Quote from @Alex Ballesteros:

I just purchased my first property (SFR) back in November 22' and I am soon to be starting the construction process of an ADU garage conversion in the back, and i was wondering if I can live in the ADU once it's built and apply to be a Section 8 landlord so i can have a Section 8 tenant live in the main house?

Also, would the ADU have to be legally permitted? Would it be possible to have it non-permitted?

Why would you choose to not have a legal ADU when you can have one. Before the recent ADU laws, there often was no option to have a legal ADU and if you wanted an ADU it was not permitted.

Permitted ADU will cost more than an unpermitted ADU, but it will add far more value than an unpermitted ADU.

A more appropriate question may be is whether adding an adu is a good RE investment. In general it is one of the worse RE investments. It often adds less value than it cost to add the ADU. This negative position can consume many months and sometimes years of cash flow to recoup. The financing for ADU builds is typically worse than financing associated with a RE purchase. Building the ADU takes months during which there is no income versus buying there is income as soon as rented. It is typically cheaper to purchase a property with an existing ADU than build an ADU. ADUs detract from existing property. In your case, the garage is being converted. In addition there is usually less privacy, etc.

Make sure before you proceed with the ADU build, make you understand the value the ADU wlll add to the property. Typically you will start with a negative position.

Good luck