Susie, you are a braver soul than I.
I live in upper QA and have seriously looked at just about every multifamily home and apartment building for some time now. I've either passed or been outbid every time. Cap rates are definitely in the 'buying for appreciation' range.
Regarding being zoned as a multi-family unit. If you are talking about upper QA, most of it is SF5000. There are many SF homes with mother-in-law units/DADUs sold as "legal duplexes" that in fact are only legal if one of the residences (typically the primary residence) is owner-occupied. A local legislator has proposed changing these rules but to my knowledge it's still in draft phase. Even then I believe the proposal requires that landlords must occupy one of the units for one yr before legally renting out the entire property.
You sound like you know what you're doing - my guess is this is nothing new but just in case you may find this link useful: http://www.seattle.gov/dpd/cityplanning/completepr...
They send out announcements and an email blast every so often that you can subscribe to through that link. I have no idea how frequently zoning is enforced...I suspect there are many folks coloring outside the lines so to speak but that's up to you. Although unlikely to be scrutinized, personally I would be careful as it could have implications for liability if an insurance issue arose, something happened on the property, etc.
As for permitting, Adrian is correct. Any construction will need to be permitted although you don't necessarily need architect-drawn plans to get it approved. The wait is longer, though, if you don't use a known architect or contractor i.e. if you draw it up yourself. I was considering a project like this about 6mo ago and was told to expect delays and revision requirements even though the plans were to be drawn up by an out-of-town professional architect.
Locals can go down to the Permitting/Zoning office and get a free consultation: http://www.seattle.gov/dpd/aboutus/whoweare/applic...
The folks there are very helpful and the zoning & permitting desks are in the same large room. Of course that's not going to do you any good if you're in SF. Don't waste your time trying to get your consult over the phone - I've tried that, they won't do it. If you have a SEA trip planned it would probably be time well spent, though.
Current rental rates for a run-of-the-mill upper QA craftsman are roughly @ $2/sqft give or take depending on size/location/amenities/etc. A converted attic should be less than that as ceiling heights can be a major problem in these old homes...maybe $1.50-1.75/sqft but that's just a guess. Lower QA is less per sqft across the board.
I'm really curious which one you bought and if I know it...best and good luck!
