Investment property too complex? No, just Duplex.

Don’t get in hot water with your ‘duplex’.

LOCAL laws are created with the stroke of a pen and they impact the property you own or property you might want to purchase in the County of Santa Cruz, the City of Santa Cruz, and the City of Capitola. (City of Scotts Valley does not have this law, and I need to check on the City of Watsonville).

Did you know that a house in the County of Santa Cruz, the City of Santa Cruz, or the City of Capitola which includes what is called an Accessory Dwelling Unit (ADU), aka Second Unit or Granny Unit, is not a duplex? A further complication: An ADU should not be confused with a guest house or guest accommodation and cannot be rented for periodic tenancies—it’s only for short guest visits, and must not include cooking facilities, etc. (I am not going to muddy the waters and talk about vacation rentals in this discussion—I’ll leave that for another time!)

So…if you understand these jurisdictions; a parcel with a home MAY allow an ADU, Second Unit, or Granny unit, but with explicit criteria on size of lot, setbacks, floor area ratio, etc. with an approved permit. The most recent properties that have a home and an ADU also have deed restrictions that say:

Subject property owner MUST reside in the main house, or the ADU.

Investors don’t want to move into their investments—they want income on both, but because of the law, they cannot. Also, just because somebody else is doing it, i.e., renting both units does not mean they might not be caught and face red tags, fines and a lot of grief.

Simply put, it means that NO investor can purchase a property with a home and an ADU and rent both units.   They must reside in one or the other. And that means, it is not a duplex! And what if an owner has to leave for a year and go back East to care for a family member and would like to rent out their home? The City of Santa Cruz will allow a 2 year dispensation to an owner who provides this hardship. After that time, they may need to move back in, discontinue the use of the ADU or sell. Santa Cruz County is continuing the Owner Occupancy, as is Capitola for now.

Finally, what if the investor thinks it’s a duplex, because that’s how it’s being used now, or how it was listed for sale. How will the investor know when they buy it?  If they don’t know, I hope they read this blog! Because, what can happen, if discovered, is a jurisdiction may require the investor to do one of the following:

  1. Move in and be an owner-occupant, and rent out only one of the units
  2. Evict a tenant from one of the units and leave said unit vacant, or remove it all together
  3. Sell the property.   That would NOT be a happy investor.

 How can you tell the difference between a home with an ADU?

  1. Call the jurisdiction responsible for the property
  2. Check the zoning! Home and ADU=Residential zoning, which is NOT multi-residential. Make sure you check, because, as I say, with the stroke of the pen, in the ordinance, what use you think you have may be entirely different. Check with the jurisdiction for answers.

I spoke to the City of Capitola about the owner occupancy issue, and they are considering removing this owner occupant mandate, because of the difficulties that arise, and with the shortage of housing, we don’t want to lose units because of the stroke of the pen.

 

Rose Marie McNair is a licensed real estate broker in northern California with over 35 years experience in residential/commercial sales as well as Government Affairs and land use oversight. She has held numerous leadership and legislative roles during her career for local and state organizations including theSanta Cruz Association of Realtors, Pajaro Valley Association of Realtors and the California Association of Realtors (CAR).

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