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?

[David Frandsen]

@Khen S. Can you clarify... When you say "regular dwelling" are you referring to a scenario where you keep the main house on the property and build an additional house? This is my assumption. 

It looks like that zoning is 2000 sq ft. per dwelling unit. So if your lot is at least 4000 square feet you can presumably build that second unit if your setbacks allow. The ADU law allows two ADU's in addition to the primary dwellings. In this scenario you end up with 4 units essentially. (2 primary and 2 ADU's)

[Khen S.]

@David Frandsen I want to develop the basement (entirely contained within the main SFR house, completely partitioned and has its own entrances) as a regular dwelling. Our 7000 sqft RD2 lot allows 3 separate dwellings, so we just want the basement legalized as a regular dwelling or as an ADU. I think the former might reclassify home as a duplex, whereas latter will be a SFR & ADU?

[David Frandsen]

@Khen S. Ok. Very interesting. I'm just going to think out loud and see if anything sticks. My first thought is the ADU would likely be the fastest and cheapest way to a second unit. (assuming the basement is a permitted part of the original house). Being under 500 sq ft you will avoid impact fees and school fees (and maybe others- not familiar with LA).

If you are willing to invest more time and money into the property I would look to go the multifamily route. With no personal experience in this (only familiarity with ADU's) I would make that SFR a duplex by converting the basement. Then this presumably opens up the door to build the additional two ADU's that are allowed on multifamily properties.

[Khen S.]

@David Frandsen thanks for the quick feedback!  with your experience in ADUs, do you know how ADUs get registered with the city?  

i looked at ZIMAS (planning/zoning/assessors public database for Los Angeles City) on some properties and do not see a entry for the new ADU/building structure. perhaps because it was a detached garage conversion? however the main house on the lot does have an entry. not sure if the unit is too new and the database is not updated yet.

on multifamily units, i do see all units have their own address and building entries listed

[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.

[Khen S.]

@Will Barnard thank you for the response. quick question, can you clarify your statement about "2 detached ADU units as an option." i think that is valid in California if there exists a multi-family dwelling on the lot, yes? our current lot only has a SFR (COO pre 1978) and an unpermitted basement (within footprint of building) which we want to legalize.

if you are open, i can message you some renders/drawings of our lot to help you visualize better.  please let me know.

[Will Barnard]

@Khen S. - your lot is zoned R2 so regardless if it only has one unit on it or not, it is a multi family zoned lot and therefore has the right (by new laws in CA) to build up to 2 ADU units. Your unpermitted basement is likely not going to fly as a second unit so at best, could be added Sf to the existing dwelling. Then you could add another unit plus 2 ADU units.

Yes, happy to look over your project if you like.

[David Frandsen]

@Will Barnard Good clarification. I had assumed the property needed to have multiple structures to do the two ADU's. But from what you saying it only needs to be zoned multifamily? Interesting. There could be some different readings of the law between cities.

In San Diego i'm hearing they are going with current use. So you would need to have a multifamily structure on the property to take advantage of the two ADU rule. I would be interested to hear if anyone is having success putting two ADU's on lot that only has a SFR.

[Colin L.]

Originally posted by @David Frandsen:

@Will Barnard Good clarification. I had assumed the property needed to have multiple structures to do the two ADU's. But from what you saying it only needs to be zoned multifamily? Interesting. There could be some different readings of the law between cities.

In San Diego i'm hearing they are going with current use. So you would need to have a multifamily structure on the property to take advantage of the two ADU rule. I would be interested to hear if anyone is having success putting two ADU's on lot that only has a SFR.

That's not correct for San Diego, if you are proposing a multifamily (defined as 2 or more per lot) you can also take advantage of this.  The updated code states: 

(C) ADUs located on a premises with an existing or proposed multiple dwelling unit shall be permitted as follows: 

(i) The number of ADUs permitted within the habitable
area of an existing multiple dwelling unit structure is
limited to 25 percent of the total number of existing 
dwelling units in the structure, but in no case shall be
less than 1 ADU; and
(ii) Two ADUs that are detached from an existing multiple
dwelling unit structure are permitted; and
(iii) There is no limit on the number of ADUs permitted
within the portions of existing multiple dwelling unit
structures that are not used as livable space, including,
storage rooms, boiler rooms, passageways, attics,
basements, or garages, if each ADU complies with state
building standards for dwelling units.

[Casey Murray]

@Khen S. I've done a couple ADU conversions here in San Diego. I'd recommend getting an ADU consultant that knows ADU rules very well. Either way, you're doing the right thing to convert and permit ADU's. It's a cost efficient way to add units and maximize cash flow; not to mention the increase in property value. Best of luck.

[David Frandsen]

@Colin L. Cool. That's really good to know that it only needs to be a proposed multifamily.