How do you add value to an existing multifamily property without buying out tenants, or waiting for leases to turn, and implementing a typical renovation program? One of the easiest ways is to add additional dwelling units (ADUs) to the property by-right. At Casitas, maximizing revenue for multifamily owners through ADUs is common practice.
ADUs are not a new concept in the California market; however, until AB-68 went into effect January 2020, adding an ADU to a multifamily residential lot was not an option. AB-68 made it allowable for multifamily owners to add attached and/or detached units to their properties.
Per AB-68, a multifamily owner may add a minimum of one accessory dwelling unit within an existing multifamily building and up to 25% of the unit count (for instance a 10 unit building is allowed 2 ADUs @ 25% of total unit count) AND/OR a maximum of two accessory units that are detached from the main multifamily structure.
What is allowable depends on your local municipality. Long Beach, for instance, allows a multifamily owner to choose to convert up to 25% of previous “non-livable” attached spaces such as garages, manager’s units, storage rooms, and basements to ADUs OR build two detached units on the lot following development standards.
Recent Example
A recent example of how ADUs are maximizing revenue for one owner in Long Beach includes an approval for two detached units that Casitas just received last month. When one of our clients was looking to add value to one of his properties, his agent suggested he consider adding ADUs to his property.
Not unlike many of our clients, he was not very familiar with how he could add ADUs to his property or how much it would cost versus what his return would be. He contacted the Casitas team and we were able to provide a feasibility analysis for him and advise him on what type and size of ADUs he could add to his property by-right.
While the lot supported two detached ADUs that could easily be two bedrooms each, the owner preferred to build two large one-bedroom ADUs featuring their own private side yards on the back of the lot. The Casitas team worked with our client to come up with a preferred design and turned around the designs including structural engineering in a few weeks.
Three months from the date the Casitas team submitted the development application and design set to Planning and Building & Safety, the plan set was approved for the two new construction detached ADUs, approximately 649 SF each. Our client pulled the building permit less than two weeks later.
Get in touch with our team at Casitas to learn more about maximizing revenue for multifamily owners through ADUs and other real estate development matters.
Case Study:
Duplex Multifamily ADUs Projections
Hard & Soft Costs: $377,787 ($188,893 /door)
NOI: $36,000 ($2,000 Mnt/Unit @ 25% OPEX)
Completed Project Valuation: $900,000 (@ 4% Cap Rate)
Profit: $522,213
ROI: 138% (using a conservative 1 Year timeline – 3 months to entitle, 6 months to construct, 3 months to lease)