All Forum Posts by: Anthony Ciulla

With the City of SD granny flat fees going down and looser restrictions, you have an opportunity.  BUT you first need to confirm your property is zoned to allow the additional 4th unit.  That is the first barrier.   Are you zoned as a multifamily property and have you reached the limit with 3 units?  You can tell by the zoning code (example RM2-3).  

You also have floor-area ratios and requirements for off-street parking by adding more density on your lot.  

Then, after you've answered those questions, you need an engineered plan (blueprint) that complies with the City's code before you try and pull any permits.  

So before anything, I recommend you find a GC who has experience in both design, regulations and construction of granny flats (ADU). I'll PM you my guy. Let him know I recommended you!!

I actually think this is a positive move. As a homeowner and resident of coastal San Diego, STVRs might be good for investors in the short term,  but left  unregulated, they cause skyrising rents, property values, and eventually convert residential neighborhoods into transient communities. Look at mission Beach for your example. A place where almost no one can afford to live.  The majority of properties are STVRs.  The MB school is closed because no families and children live there anymore.  

Eventually, a bubble will burst because of ever increasing prices and those investors who can't predict when to sell will lose their money. 

As an investor in it for the long term, I want my money in a stable equity where it maximizes value while not causing hardship for others.  If I didn't care, I'd simply become a drug dealer.  But I do.  And I think that my money and efforts should also not do harm into others. I believe unregulated STVRs do cause harm.  I read the approved plan and it's reasonable.  Homeowners can realize extra revenue. Investors can still rent properties long term.  If they want, they can invest in licensed hotels and realize a profit without pushing out residents.  However, the behavior of purchasing multiple properties with the intent of displacing residents runs contrary to the concept of responsible investing.    It's no different than burning down a forest to grow a few crops for a quick return.   We don't want a dead landscape.  We want desirable and vibrant communities in which to invest our money. 

I'm not well-versed in appraisals but a few things stood out when I read your post: 

I believe you purchased this house 4-5 years ago for and it reappraised a year later in the high $400s.  If its been 3 years since then, you may well naturally be over the $500K mark since the SD property values are growing nicely year-over-year.  I don't think new windows or pipes will make much of a bump.  

AND I'd look into that garage conversion.  if it was done "illegally" then it might be a problem for your appraisal.  Was that garage conversion done with the proper permits and inspections and is it up to code as a livable space?  I'd first confirm that before spending money on an appraisal or else your appraiser might need to include that in his report and it may bring your value down to include the costs to revert to a garage or bring it up to code.  

As others have, I would imagine the on-site construction costs would be a little higher: concrete slab, utilities, surveying, etc. Then of course, depending on where the site is. If in the California Coastal Zone, there are additional regulations/requirements - even for ADUs. One would still need to calculate their specific property's zoning and FAR (floor area ratio) to insure the ADU doesn't violate any setback and other restrictions. But that's on the homeowner.

This sounds like a decent business plan...assuming these kits meet the current CA dwelling codes for everything from fire to earthquake. 

Question; have you done a side-by-side comparison for the true costs of this vs. domestic modular home builders?  I would filter it down to price/sq ft.  I suspect that a domestic kit builder (including mobile homes) would be a bit cheaper by avoiding the freight, import fees, etc.  Don't forget about Trump's soon-to-accelerate trade war with China!  That is certainly a threat you shouldn't ignore!  

Otherwise, great idea.  I'd like to follow to see how you progress and if you can turn this into a reality.

Not yet...but that's my plan.  I'm in the design-phase.  My lot is 2,500 sq/ft which allows me only 1,750 sq/ft living space (ground floor).  I need to dedicate 25% for off-street parking - reducing my livable living area.  And don't forget the set backs & FAR (0.7 in my case).  This reduces my living area down to 1,312 sq/ft. So the only way to put a 2nd unit is to go up with a second story.  But I also have a 30 foot max height because I'm in the coastal zone.  See...lots of considerations BEFORE I even think about remodeling/rehab costs.  I think many people put the cart before the horse.  They'll purchase a property without doing their due-diligence on the zoning and other restrictions.  Then get stuck with a property they can't legally convert into multifamily.  

An ADU allows me to "bend" some of these restrictions. That's what I'm designing. I will occupy one of the units. Overall, the rental income will reduce (not eliminate) my monthly outlays allowing me to live in San Diego at an affordable price while also creating equity in my home. It's that equity that I'll leverage for future investments. The rent I collect after I pay off the mortgage is my retirement annuity.

One thing I know, if you can break into the San Diego market, you've increased your scale and potential for ROI. VERY high demand and VERY low supply.

Good luck!

Hello Tim, 

I live in/own a property in San Diego zoned RM-2-4 which means that depending on the lot size, you can do a max of 2 units.  All restricted by the floor-area-ratio from the City.  So to get around those restrictions, you might need to build up with a second story - which, of course, increases your costs by a big factor. 

So for me, the VERY first thing that would go through my mind is how many units I can legally stuff into the space I'm given. Do I need to add a 2nd floor? Can I simply add an ADU (accessory dwelling unit or granny flat)? So I would first qualify the property size with my required # of rental units to make a profit.

The property you showed us is on a 7,500 sq/ft. lot.  Which, on the surface seems to allow you the flexibility to add the 2-3 units you want.  The price of the property is great (under $400K) so I would have jumped on it after first having confirmed the above.  The existing condition of the property isn't as much of a consideration...the value of that land with an income-generating unit exceeds the current costs.  You would end up with a +$million property.  Spend $400k to acquire and another $400K max to rehab.  $800K max outlay. 

After rebuild/remodel, you're already at $200 positive equity on paper before you collect the first month's rent.

This would have been a good project assuming you had access to required capital or funding.   

Your last sentence is incorrect.  You won't pass ANY inspections unless each inspector verifies work in progress.  That's AFTER your plans are approved. 

i would strongly caution you against adding a habitable living space without pulling the proper permits. If discovered, not only do you risk fines and litigation, you'll be forced to tear it down, insurance rates climb and you'd be criminally liable for any injuries on that space (think Oakland warehouse fire).  It's not worth the savings. Plus any licensed contractor (or sub) will not do the work and I wouldn't trust one who would!  

Like all cities, San Diego is very sensitive about illegal construction and you'd easily be discovered as soon as you listed the property and someone compares the listing to the previous sale. 

Also, is the floor on which you plan to build engineered to take the weight of a full structure?  Safety first and protect your tenants and you'll make money hand over fist in the San Diego estate market without having to cut corners!

Everything I wrote might be unnecessary if whoever did the existing work in your pic did it legally.  I'd go to the county and see if plans were submitted and approved. Then you'd be a step ahead. 

Good luck!

I agree...property prices in SD are at another scale than the rest of the USA.  However that higher purchase price scale also allows for much higher rental income.  So $200K for $1500 rent seems reasonable and doable.  

I think the best strategy is to buy low distressed property, rehab, then hold and rent for profit. 

Thanks @Dan H..  I checked it out.  Understood. 

Google Maps 3D is awesome by the way.  I was able to zoom right in and see what you meant. 

Thanks for the insight @Dan H.  This property would be a great income-generator.  Unfortunately, it's looking more like the additions exceed the 30 foot height limitations for the zoning.  I can't tell for sure because I didn't have a chance to physically measure the property.  It that's the case, then it's an illegal structure and I won't be able to get a cert. of occupancy for the covered decks - a deal breaker.  

I'll post here for anyone who is interested in my progress so that whoever reads this can take from my "lessons learned". 

Thanks!!