When Real Estate Opportunities Hide in Plain Sight

If you own an apartment building, or ever think that you might, there is big news for you. On January 1, 2020, the laws in California that govern multifamily property—any residential property with two units or more made an amazing change. With the pandemic environment it is entirely possible you missed the huge positive impact this will have on these investments.

Before 2020, only single-family lots could add an Accessory Dwelling Unit (ADU) to their property. Now all multifamily investments – from duplexes to large apartment complexes – are allowed to add a minimum of two additional apartment units – and often many more. This is an opportunity to greatly increase the cash flow of these buildings.

This opportunity is hiding in plain sight at a time when some people view apartments as a less desirable investment, because not all tenants are paying rents due to Covid disruptions. As a result, some apartment buildings are selling at reduced prices. But these new laws now allow owners to add additional units (and income) to their existing buildings. This is the classic time to buy low – fix up and improve – and sell high.

Mesa Market Report

What qualifies a dwelling as “Multi - family?”

Any property with two or more units is multi-family. The zoning must allow for residential use.This applies to nearly all residential and commercial zones. Generally, only industrial zoning prohibits residential use.

How many ADUs are allowed?

All Multi-family properties can add a minimum of 2 ADUs. You cannot convert living spaces or uncovered parking areas. However, carports can be removed and ADU’s added. Larger buildings can add 25% of the number of units. A 16-unit apartment building could add 4 more units.

What size ADUs are allowed?

Detached ADUs are limited to 800 SF each and 16’ in height.

What about Parking?

Surprisingly, no parking is required for ADUs created out of accessory space within the multi-family property. You do not have to provide parking for ADUs that are within 1/2 mile of public transportation or one block from a car-share vehicle. This is nearly every property in Santa Barbara!

You are allowed to convert parking garages into ADUs without having to replace the parking. As a landlord, you do need to consider where your tenants will park. You may have space for a parking lot or there may be street parking nearby and in some urban settings, tenants do not always own cars.

There are a lot of specifics you may need to know if you want to jump in. I can also refer you to experts for help with planning. I’m one of the few agents that understands the regulations – as well as the opportunities. ADU laws are new and evolving, call me to explore new possibilities.

Client Talk…

We were very pleased with Scott’s help in marketing and selling our home. His initial market analysis, coupled with a strategy to make improvements to raise the home’s value, allowed us to bring our house to market at a perfect price point. After less than a week our house sold for well over the asking price. All of this was successfully accomplished during the Covid - 19 pandemic.

Doug and Elizabeth Imperato