[Oakland, CA] Creative Ways to Maximize Returns on Unit?

Question

Hey Guys,

I'm house hacking a duplex in Oakland and would love to get ideas on how I can maximize returns on one of my units.

The unit is a 4bdr split level unit that has a similar floor plan on both floors.  The previous owner intended on creating 2 units out of this, but never got around to it.  The upstairs has the kitchen, but the downstairs has a footprint of where another kitchen should be.  The only renovation I would physically need to do is to add a front door, kitchen and a partition wall to create 2 separate 2 bdr units.

In a perfect world, I would get this permitted into 2 units, but I called the city and the lot size will not allow for adding an additional unit.  I could rent this unit as a whole, but would get much higher returns if I was able to create 2 separate units out of this.

So I'm looking for options at this point.  Here's what I'm thinking is possible...

1)  Rent the unit as a whole and leave it alone.  In the area I am in, I could get between $3500-3800 for a 4bdr/2bth unit.  I'm close to Temescal and Bart, so it's pretty desirable area.

2)  Break up this unit and created (2) 2bdr/1bth units, I could probably get $2400-2600 each.  This will obviously be unpermitted, so I'm pretty inclined not to do this.

3)  Create the illusion of 2 units by adding a separate front door, kitchen and a lockable door that separates the units.  Legally, this will just be 1 unit but with 2 entrances, 2 kitchens and a door separates the 2 spaces.  Rent both spaces out separately to corporate housing or Airbnb which will hopefully minimize any issues with long-term tenants and unpermited issues.

I'm curious if idea 3 can even work.  Would love feedback or any other ideas to help maximize this return.

Thanks!

J. Martin · Answer

Calvin,

Talk to the city about it. I've heard different things through the grapevine regarding what constitutes one unit vs 2, especially regarding having 2 kitchens. However, in the only instance I directly know of dealing with the city in Oakland, having access between both of the spaces (through a door, for example), is adequate for it to be one unit. If you remove the door and put a wall in, and there is no direct access between the two units (like having to walk outside), then they will consider it 2 units, and you'll run into issues.

Although I have heard about inspectors getting finicky about a second kitchen, as long as its permitted, you shouldn't have an issue. I am not aware of any laws against having 2 kitchens in one dwelling unit (in fact, many very high end houses have a second kitchen for the staff to cook for social events). Again, as long as the original work is permitted... This has been confirmed in at least one case that I have seen in Oakland. If you get an inspector that hassles you, have the printout of prior permits that shows the 2nd kitchen is lawful, and that there is only 1 unit, with continuous access to the entire unit. It looks weird and they might question it, but just remind them what's legal..

Airbnb always pulls in the most here in the Bay for me. It seems like Airbnb is the most popular in urban areas and biz travelers. And homeaway/vrbo in more vacation areas, larger homes, and an older crowd that's less tech savvy. I got a subscription for Corporate Housing By Owner (CHBO), but didn't think we've booked anything from them yet.. There are about a million other sites that you can try, but these are the big dogs, and it takes a lot more effort to sync and respond to too many sites that don't produce a lot..

Good luck Calvin!

J. Martin · Answer

@Calvin Kwan,

#3 is definitely feasible, and sounds like you could still do it in a legal manner, and still maximize your income. Airbnb guests would be fine with renting an apartment with a locked door to another space. You can install 2 doors with locks on each side, just like a conjoined hotel room with the double doors in between. That way, neither tenant can access the other side without both of doing it. (However, it would then not be an egress, so take that into consideration with other egresses..)

Another idea would be to put something over the doors, to make it look more natural. I heard @Arlen Chou is getting into the custom mirror manufacturing business. You should probably shoot him a quick email and ask about his experience.

@Ori Skloot,

The only thing that sometimes pops up with the split model is if the long-term tenants don't like the idea of the short-term tenants, or try to stir up issues with the city. Depending on the minimum number of days' stay (longer would be less of a problem), things could pop up. But have had many that are fine.. Just my 2 cents/word of caution on splitting it.

Another difference is that you'll keep the unit churning with STR. If a long-term tenant stays, they're going to be under rent control for who knows how long unless the unlikely case that your building is exempt from rent control.

Calvin Kwan · Answer

@J. Martin - Thank you so much for the insight and feedback.  I'm super inspired by the work you've done and hopefully can be in your shoes one day!

One more question, if you don't mind me asking.  For your STRs in Oakland, do you have a minimum number of days required?  I know on AirBnB, most will be a few days here and there, but corporate rentals will provide a longer rental period.  In cases of 30 days or more, do you provide an actual lease?

Again, thank you so much for your feedback!

Calvin Kwan · Answer

Thanks for the feedback!

@Ori Skloot - I want to avoid mixing LTR and STR tenants if possible to avoid issues mentioned by J, but this thought has definitely crossed my mind.

@J. Martin - Glad to hear your feedback on #3.  Do you know what exactly would distinguish a 1 unit vs. 2 units?  Is it the number of kitchens, egresses, etc?  I'm assuming since I am providing access between the units (door), it will still be legally considered a single unit.  Also, for furnished corporate housing, do you recommend Airbnb or other Corporate Housing sites?

Again, thank you guys so much for the advice!

J. Martin · Answer

Without a kitchen, you pretty much need to be at a lower price point. But for short stays (and even some longer stays), it's not a big deal. Especially in a small place for one or two people. The bigger the place, with a bigger group, the more likely they may want to cook and save money.

I'm not doing room rentals. Just entire apartments right now. But am going to test some room rentals and maybe shared bedroom at one of the properties I own.

We use Guesty to automate most of our guests communications, track leads, and get fast response times. At 3% of revenue for the software only, I think it's worth it to save time and reduce errors.

Stoked you'll be out to the Summit! Oct 7 & 8. Announcement coming shortly.. ;)

Calvin Kwan · Answer

@J. Martin - Looking forward to the Summit!

I was looking through other threads and saw that you rented out a kitchen-less unit as a STR.  How did that perform compared to your units w/ a kitchen?  I'm assuming it didn't perform as well, but was wondering how significant.

Also, you mentioned many times about the need to automate as much as possible.  Are you room hacking your STRs?  If so, with so many different folks coming in and out, doesn't that require a lot of management?

Thanks again!

J. Martin · Answer

Happy to inspire ;)

Our minimum number of days vary based on property. Some are 30+. Some, we go lower. Depends on situation (geography, if I own it, etc.). Generally, you'll make more money breaking it into the smallest stay possible, with as many beds as possible, but that adds some work.. And haven't done as much of that myself yet.

Corporate tenants rely heavily upon the concentration of nearby employers that have constant demand for longer-term rentals. Oakland has not produced that for us. I hope you crush it on corporate rentals out there, but I wouldn't call it prime time relative to other SF Bay locations for corporate rentals specifically, in my experience.

I encourage you to dip your toe into the water and see how it feels, if you're in a position to do it. No risk, no reward. If you can't afford to experiment, then do it later..

We'll be talking about this at the Summit in Oakland this year in October also. But feel free to hit me up with questions ;)

Ori Skloot · Answer

What about a fourth option (I'm not giving advice just an idea) of splitting into two units, renting out the one with the original kitchen long-term, and doing short term rental on the second unit. Best of both worlds?

[Oakland, CA] Creative Ways to Maximize Returns on Unit?

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