HBU for Rental Analysis

[ZZGAMAZZ]

The subject has a garage to "recreation room" conversion with a building permit from long long ago. It was since converted to a full unit with studio, bath, kitchen (presumably without permits although the improvements are 100 years old so who knows?) that is tenant-occupied at present.

Now I'm addressing the client-ordered rental anaysis. So.... the conversion can't be legally leased because the current use as a tenant lease isn't legal. But it's leased within a strong residential rental market.

Should I use the conversion unit to determine the potential market rent, in addition to the main unit, or should I not do so because it would fail the HBU analysis?

I have absolutely no idea how to proceed. (Seems that every assignment presents a nuance or 10 I never previously experienced. It does't seem possible that I have as many questions on a daily basis as the entire rest of the peer population. How possible???)

 

[Zephyr999]

Let's go...
The lender is asking for a rent analysis becuz that's the current as-is condition based on your post.

The garage conversation is a piece of what has happened to the improvements but it alone does not establish as-improved HBU, the appraiser concludes it based on observation of neighborhood, aka the market.

If the garage rents are similar to other rents in the market for converted homes or even duplexes as a proxy it suggests HBU as-improved is as it exists.

 

[Dublin ohio]

Let's go...
The lender is asking for a rent analysis becuz that's the current as-is condition based on your post.

The garage conversation is a piece of what has happened to the improvements but it alone does not establish as-improved HBU, the appraiser concludes it based on observation of neighborhood, aka the market.

If the garage rents are similar to other rents in the market for converted homes or even duplexes as a proxy it suggests HBU as-improved is as it exists.

So we just throw out the legally permitted part of HBU?

 

[CindyR]

The subject has a garage to "recreation room" conversion with a building permit from long long ago. It was since converted to a full unit with studio, bath, kitchen (presumably without permits although the improvements are 100 years old so who knows?) that is tenant-occupied at present.

Now I'm addressing the client-ordered rental anaysis. So.... the conversion can't be legally leased because the current use as a tenant lease isn't legal. But it's leased within a strong residential rental market.

Should I use the conversion unit to determine the potential market rent, in addition to the main unit, or should I not do so because it would fail the HBU analysis?

I have absolutely no idea how to proceed. (Seems that every assignment presents a nuance or 10 I never previously experienced. It does't seem possible that I have as many questions on a daily basis as the entire rest of the peer population. How possible???)

I have absolutely no idea how to proceed. (Seems that every assignment presents a nuance or 10 I never previously experienced. It does't seem possible that I have as many questions on a daily basis as the entire rest of the peer population. How possible???)

you just got lucky go buy a lottery ticket

 

[ZZGAMAZZ]

you just got lucky go buy a lottery ticket

Just like my tombstone goanna say:

Failed Investments
Failed Careers
Failed Relationships

BTW our mentor and hero called me stupid and incompetent about 3 weeks ago; said my appraisal reports are worse than his brand-new trainee. He was really pissed because I used both upper and lower case characters in a report rather than all caps, which would diminish his credibility in the eyes of his clients. Said that I violated USPAP for failing to use the trailing digits after a hypthen after the subject zip code. Said that the subject's extra nice enclosed patio had to be reported in the SCA on the porch/patio row rather than as a miscellaneous line item. He even said seriously that he would drive to my house to beat me up if I ever did that again. Said that he is the boss and so he gets to make the rules. I couldn't argue with that but told him that we would meet someday in court (although damn I hope that never happens!!!!) Anyhow I always remember that he gave me (and dozens and dozens of others) a career opportunity for which I am forever grateful. Seemed that day that he had grown older during the past 15 years since we last worked together. (MF even suggested that I should retire, a factor that I think of everytime I can't climb the stairs to the 2nd floor of a 2-story SFR, or even worse, if the FHA client expects me to stoop down to observe a crawl space. So I might retire in about 25 years from now.)

Hope you are well. GM

 

[George Hatch]

The conversion to GLA w/permits makes it GLA. The configuration will probably allow an in-law or kid occupancy. Your only real problem is the kitchen appliances.

ADUs are all the rage now, and it's probable the jurisdiction will allow the occupancy if permitted after the fact. That may require some work to bring any outstanding deficiencies into compliance. In this region my guess is that the typical buyer would take that bet on the speculative basis. However, a lender might not be able to get insurance if there's an unpermitted stove onsite or any building code deficiencies.

 

[ZZGAMAZZ]

The conversion to GLA w/permits makes it GLA. The configuration will probably allow an in-law or kid occupancy. Your only real problem is the kitchen appliances.

ADUs are all the rage now, and it's probable the jurisdiction will allow the occupancy if permitted after the fact. That may require some work to bring any outstanding deficiencies into compliance. In this region my guess is that the typical buyer would take that bet on the speculative basis. However, a lender might not be able to get insurance if there's an unpermitted stove onsite or any building code deficiencies.

Complexity of the improvements....

SFR with detahed garage built in 1925 with current deplorable condition Main Unit, as well as about 25% damaged original plank tiles on exterior of both units, etc., etc.
Building permit without date provided to appraiser by listing agent, to change the garage into a "Recreation Room."
Recreation room revised at an unknown date into is a full-blown living unit with studio, full kitchen, full bathroom.
Main Unit living area appears to include original construction (appraiser's GLA equals Assessor GLA) and also a relatively large, presumably non-permitted, attached, rear step-down room.
Condition of Main Unit is C5 with (short) list of items required by appraiser to fit into the client "As Is" status.
Appraisal also includes various "Subject To" requirements: Contractor inspection of Main Unit. Contractor inspection of Detached Unit, Roofing Cert, etc., as well as "Subject To" the follow-up remediation of issues revealed by the e.g., Health & Safety issues.
Property is "Legal Non-conforming" because current developmental standards in Ontario, CA, require a garage.
Search for 1004 comps constrained because subject condition is inferior relative to 95% of the neighborhood, and because subject's 2nd unit is not permitted as a living unit, with forever-unknown market response to permitted vs non-permitted status.
Search for 1007 rental comps less constrained because grid includes SFR's, a SFR w/permitted Guest Unit, and Guest Unit, per se, rentals.

And what I must ignore professionally is the list price of $500,000 and a contract offer of $500,000, whcih is $350,000 more than I would pay, although the AF previously addressed the fact that many buyers don't care because the only skin they have in the game is a few bucks out-of-pocket, and their credit.

The assignment is completed; and I would hate to be the underwriter wading through this mess of a report.

 

[Zephyr999]

So we just throw out the legally permitted part of HBU?

Me thinks you're hung up on those pesky permits not being applied and paid for....which is unlawful.

 

[Dublin ohio]

Me thinks you're hung up on those pesky permits not being applied and paid for....which is unlawful.

So.... the conversion can't be legally leased because the current use as a tenant lease isn't legal.

Sounds like the unit can't be legally leased. Not a permit issue.

 

[Zephyr999]

Sounds like the unit can't be legally leased. Not a permit issue.

I disagree...that's a separate issue.