ADU vs regular dwelling crossroads

[Khen S.]

hi biggerpockets!

for those have done both ADUs and regular dwellings or have made the decision with one over the other, please offer your feedback.  it would be greatly appreciated and perhaps help other investors in the same crossroads.

I have a lot in LA City zoned RD2 which Planning says allows me to build up to 3 separate dwellings. I have been reading the ADU discussion here with great interest. On my lot I currently have a SFR with an unpermitted basement (finished) unit that I would like to legalize. I'm in a HPOZ (Angelino Heights) and on a hillside (not very steep), and my basement is ~450 sqft. No part of the basement is visible from the street. I understand ADUs have certain advantages that help reduce the timeframe & red tape to get a permit to build. However, I have also been hearing appraisers just aren't currently giving much added value to ADUs in their appraisals.

I'm debating whether I should legalize my basement by going the regular dwelling route vs. going the ADU route. A JADU is not an option for me as I do not intend to occupy the lot and will rent out both units. I currently have 4 parking spots on the lot so the eased ADU parking requirements wouldn't help me. I've contacted both the Planning Dept as well as LADBS and the latter says the timeframe to assign & approve plans between ADUs vs. regular dwellings is currently running about the same. Architects I've talked to estimated ADUs to take ~8 weeks to get city permits vs. ~8-12 weeks for regular dwellings. For me, a delta of ~one month is not critical. Additionally, if I have to end up paying more for permits & studies (up to ~$10k more) I don't mind doing so if I'll be assured I can make up those expenses on the back-end sale. I plan to hold and operate the property for at least another 5 years.

I'm leaning towards the regular dwelling route but one architect told me going the regular dwelling route might require Baseline Hillside Ordinance (BHO) compliance, hill/slope grading analysis, a soils report, hiring a fire consultant to design/engineer fire sprinklers for the SFR, and having a structural engineer design/engineer the entire house (SFR + basement). If this true, then I imagine the regular dwelling route would add on much more than just one month's timeframe. For those of you who have come across this ADU vs. regular dwelling decision, can you tell me which route you chose and why? I want to understand what additional studies/inspections/reports a regular dwelling permit would require. Approx how much more should I expect to have to spend (permits, utilities) going down the regular dwelling route?

[Will Barnard]

From your post, it appears that you have an underdeveloped parcel. With the ability to have up to 3 units on your R2 lot and you only have one plus an unpermitted finished basement, if your plan is to hold for 5 years plus, I would fully develop it assuming it pencils out to cash flow during your hold and that you have the financial means to do so. 

As a developer and a licensed contractor, I have done both. You are correct in that ADU's are not currently being given their full values from appraisers, mostly because they do not have enough similar sold comps to do so but that can and will likely change over a 5 year period as more and more are built and then sold.

From a buy and hold cash flow perspective, the more cash you can pull out of a lot, the better and the way to do that is with more doors or higher rents. In your situation, you have multiple options with 2 detached ADU units as an option. The CA law also provides your ability to add non livable space on multi family zoned lots into livable space so long as you meet fire codes. Without seeing the lot in person, it is difficult to determine what is best in this case but going off of what I see here, converting the basement into livable space (legally) and adding more units would be the way to go.