Add and ADU to and existing Duplex Property?

Question

Hi Everyone - Looking for general short-term rental / ADU advice here.

I currently own a duplex where I live in one unit and short-term rent the other. I make about 45k/yr just off that one unit via AirBnB. I have a small property, but for about $150k I could build an additional unit and probably make another 30-40k/yr off of that given the area I live.

Here are some numbers: Purchased house several years ago for 550k. Have about 400k left on mortgage. Property is current worth about 750k.

Seems like a good investment to me, but I worry about over-leveraging in a hot market if I decide to sell at some point. What are your thoughts?

Jess Haas · Answer

Hey Michael,

What do you mean by that? I haven't seen anything other than the normal 1 STR limit in Seattle. Is there another piece of legislation going into effect that I'm missing?

Brad Hammond · Answer

Hey @John B., I've got some thoughts for you.

1. With the residential infill project that starts on August 1t, your property might qualify for it.  I just wrote an article on it for my newsletter.  DM me your email address if you want me to forward it to you.  Or you can look it up online.

2. You should check out Dweller as an ADU option.  They are pre-fab ADUs and they have good financing options.

3. As you know the city would rather you use it for a long-term renter so to get a short-term permit might be very expensive.

Logan Loughmiller · Answer

@John B.    As long as you're living on the property I think you can rent out several units. Confirm, but that's my understanding. I don't know how they tally the 2BR vs 3BR+ permits, but I've been asking around for a property I'm working on thats somewhat relate-able. Also in Portland, 2/1 in front that I'd like to make a 3/1, plus a 1/1 detached ADU where I live in back.

I don't know for sure if having multiple, separate units on the same property means you have to add them all for a BR total on a whole property or if each unit counts as its own >2BR easy to get permit. That would be a big thing to consider in your calculations.

Two people I talked to that have the 3BR+ Airbnb permits have said they paid 17K and 25K, with the basic fee of 6500, but there are a lot of other requirements, many of which require property adjustments. They did use a service to obtain the 3BR+ permit, which may have added to the cost (but taken away a lot from the headache).

John B. · Answer

@Michael Baum This is good information for me as well. I’m in Portland, but this is starting to feel like not a great investment if I can’t short-term rent it. Thanks for the detailed information.

Michael Baum · Answer

Hey @Jess Haas, yes there is. Mayor's executive action 2019-04 I believe is the number. It loosens the restrictions on AADU and DADU units in certain zones.

They will be actively monitoring the permitting and use of the units.

In SF5000, SF7200, and SF900 zones, up to two ADUs may be constructed. This can be either two AADUs or one AADU and one DADU. The second unit must meet specific criteria to either 1) meet green building standards or 2) be an affordable unit reserved for income-eligible households. In RSL and multifamily lowrise zones, only one accessory dwelling unit is permitted in each single-family, rowhouse, or townhouse unit. ADUs are not allowed in apartments.So essentially if you choose to construct a AADU or DADU on your property, you will have to meet green building standards and be reserved for low income folks.

Essentially if you apply for the STR permit, it could get denied due to use requirements for the newly constructed dwelling units.

You will have to do some research or make a call or 2 to see how things are shaking out. Some of the city council has said openly that they will be restricting or removing STR permits if they are used for that purpose.

You are in Seattle so you know the council is not friendly towards landlords at all.

John B. · Answer

@Brad Hammond Thank you, appreciate the expertise.

John B. · Answer

@Michael Baum Good point. Need to do more research on all the different rules. Thanks for the heads up on that.

Michael Baum · Answer

Hey @John B., make sure you can short term rent that ADU if you are allowed to build it. The encouragement to build ADU's in Portland and Seattle are for low cost housing and not short term rentals.

I know Seattle is restricting the short term rental use of new ADU's placed on existing platted properties.

John B. · Answer

@Bruce Woodruff Probably something around 500sqft, but it will be a bit higher end if I go that route.

The more I think about it I might just want to relocate and buy an existing 3plex or 4plex instead.

Bruce Woodruff · Answer

If the numbers work and your city is promoting ADUs, do it. I've bid a lot of these when they were in vogue starting out a few years ago....How many SF are you getting for your $150k?

Add and ADU to and existing Duplex Property?

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