Triplexing of single family homes in CA

[Jose Leanos]

Hello all,

I am deciding between selling my single family home in Long Beach, CA in order to purchase a multi family property and using a cash out refinance to build an ADU and junior ADU. I currently have about 55% equity in my home which would net me about 220k(assuming a Loan to Value ration of 80%) and converting my attached garage(400 sq ft) into a junior ADU and then building a free standing ADU in my backyard. I was wondering if anyone had any experience with "triplexing" a single family residence, I wanted to know what some best practices are when doing so, such as whether separate meters will be worth the added cost, what is the down time between permits and construction and lastly what is the actual cost. I have gotten different things online in regards to cost to build and I am assuming that 220k would be enough to cover the costs of the garage conversion to a junior adu and also the building of a free standing structure adu but again I have many questions about this process.

I am torn, because I was really set on selling my home to start house hacking with a multi family property, but the idea of "triplexing" also works out well as far as the numbers are concerned and my mortgage would still remain relatively inexpensive. Added bonus I would not have to move. Please give tips on ADU and junior ADU's in California, or if multifamily is your preferred method why not ADU's and junior ADU's.

Best

Weighing the pros and cons

[Steven Nguyen]

Hello Jose,

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.