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Property owners having success with ADU conversions

San Francisco property owners are taking advantage of a 2016 expansion to the ADU (Accessory Dwelling Unit) law, enabling owners of buildings with at least five existing units to expand to an unlimited number of units.

What structures are being renovated?

Owners have applied for permits for ADU renovations of existing storage spaces, boiler rooms, and even old dining commons. In the case of the dining hall renovation – the owner will get seven new apartments between 220 and 381 square feet. The rent for these “granny flats” will be $2,400 to $2,800 a month.

Owners are revisiting dead equity in their property for its potential to be re-developed as one or more ADUs.

Housing shortage creating boon for multi-unit dwelling owners

At first thought, $2,400 may seem high for a small unit in an old storage room. But San Francisco is short on housing.

The median price for a new apartment is $4,400. For some middle income earners who don’t qualify for low-income assistance, a smaller unit like an ADU is more affordable.

Income potential for property and home owners

Twitter, Facebook and other large San Francisco companies may provide great salaries to their employees. However, high housing costs mean an employee making $160,000 may be struggling to make ends meet.

Families seeking single-family homes are often priced-out of the market. Landlords are able to rent these homes for more money to groups of 20-somethings who pile into the house at $2,000 per room.

If a homeowner or multi-unit property owner converts unused space to an ADU, they can create additional income to assist with mortgage payments and other living costs. This option may open up the possibility for single families to generate enough income to afford a home.

Issues to look out for if you plan to convert unused space

The law created a new asset class within the real estate market. Nevertheless, as an owner, you’ll want to be informed about the laws for these units. In addition, you may be faced with neighbors or current renters who don’t feel your plan is a good idea.

Consult a lawyer who specializes in real estate law and mitigate your risk before embarking on one of these renovations.

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