You can usually fit three separately rentable units on a standard 8,000-square-foot city lot: a single-family house, an attached ADU, and a detached ADU at the rear. Whether that ADU infill development pencils comes down to two things most investors check last — whether sewer and water can physically reach the back unit, and whether the city’s building code amendments match the international code your plans were drawn to.
Darrel Donohew, a Northwest Arkansas agent, builder and developer, built exactly that configuration on an 8,000 SF lot about ten minutes from the University of Arkansas. Five-foot side setbacks on both sides meant every service line had to run under the front structures, and the fall from the rear unit to the street sewer became the project’s defining engineering problem. He also lost $10,000 to $12,000 holding a fixed price.
What follows is the worked example: the configuration, the utility constraints that break these deals, the code conflict that forced rework, the budgeting rules he now uses, and how he funded his first acquisitions with no capital.
Key takeaways
- Five-foot side setbacks on a narrow infill lot can eliminate any route for sewer and water around the structures, forcing lines under the front house — confirm the sewer can fall from the rear unit to the street before you sign a contract.
- Building to the International Building Code is not enough. Cities adopt local amendments, and finding out after framing means rework at your cost.
- Carry at least a 10% contingency on any rehab or infill build, and assume overruns rather than savings.
- On an 8,000 SF lot, a house plus attached ADU plus detached ADU gets you three separately metered rental units without a triplex entitlement.
- Donohew’s first distressed purchase was a $175,000 cash, as-is, 10-day close funded by a private lender three hours away, repaid at roughly $195,000 on a property worth $265,000 to $275,000. It then took about 500 touches to find the next one.
From the Real Estate Pros Show
This article draws on an interview with Darrel Donohew on the Real Estate Pros Show, hosted by Issa Hanna.
Why Infill and Upzoning Beat Outward Growth Right Now
The best current opportunity, in Donohew’s read, is infill and upzoning — specifically in cities that have little or no outward growth left. Those markets still have vacant and underused parcels inside the existing service area, already served by streets, sewer and schools, and increasingly covered by zoning changes that allow more units per lot than they did five years ago.
His point is that this is not a hot-market play. Every metropolitan area has infill parcels. A city with flat population growth and no greenfield expansion is arguably the better candidate, because the only way to add housing stock is to add density to lots that already exist.
What separates this from wishful thinking is how he underwrites the market. Donohew does not evaluate Northwest Arkansas in isolation. He tests it against other markets on the underlying fundamentals — unemployment rates, the economic drivers behind job formation, and the supply and demand factors that set pricing. If your home metro only looks good because it is the only one you have studied, you do not actually know whether it looks good.
Practically, that means before you option an infill lot, you should be able to answer: what is the employment base here, is it concentrated in one employer, and how does the rent-to-build-cost relationship compare to two or three other metros you could operate in. The zoning permission to build three units is worthless if the demand to fill them is not there.
The Three-Unit Small-Lot Configuration: House, Attached ADU, Detached ADU
The build was a single-family residence with an attached ADU, plus a detached ADU at the rear, on an 8,000 square foot lot with alley access roughly ten minutes from the University of Arkansas. Three units, three separate tenancies, one lot.
Donohew calls it a triplex for simplicity, but it is not one on paper, and that distinction is the whole reason the configuration works. A triplex requires multifamily zoning. A single-family home with an attached and a detached accessory dwelling unit sits inside what many residential zones already permit, which means no rezoning fight, no multifamily entitlement, and a different set of building code requirements.
The owner’s requirement was that every unit be individually metered so all three could be rented separately. That is the design decision that converts an owner-occupied house with a guest suite into a three-door rental asset. Separate meters mean tenants pay their own utilities, each unit stands alone financially, and the units can be leased on independent terms.
Three features made this lot a candidate rather than a stretch:
- Alley access — the rear detached unit gets its own entry and parking without cutting a second curb cut or running a driveway down the side yard.
- Proximity to a major university — a reliable rental demand base within a ten-minute drive.
- Lot depth — enough rear yard to site a detached structure behind the primary house while still clearing setbacks.
If a small lot is missing alley access, you are probably looking at two units, not three.
I actually told him my number. I said, this is my number, and I’m sticking to it. Well, I didn’t stick to the number. I ended up going over, and I lost somewhere between ten and twelve thousand on the build. But I see that as an opportunity to pay for my education.
— Darrel Donohew, builder and developer, Northwest Arkansas
Utilities and Setbacks: Where Small-Lot ADU Deals Actually Break
The lot had five-foot setbacks on both sides. That left no usable corridor to run services around the outside of the structures, so sewer and water for the rear detached ADU had to run under the front single-family home and its attached ADU.
That is not a cosmetic problem. Running utilities beneath occupied structures changes your foundation detailing, your sequencing, and your future access for repairs. It also puts the back unit’s service on the critical path of the front building — you cannot pour until you have solved the routing.
The harder constraint was gravity. Sewer requires fall. Donohew had to get the line from the rear detached unit all the way to the street with enough slope to drain, across the full depth of an 8,000 SF lot and under two structures. On a flat or adversely sloped parcel, that single question can determine whether the third unit is buildable at all.
Check this before you contract on a small-lot infill parcel, in this order:
- Locate the sewer main — street or alley? Its depth and invert elevation set your available fall.
- Shoot the grade from the proposed rear unit’s slab to the main. Confirm you have the drop, or price an ejector pump and the city’s willingness to accept one.
- Confirm side setbacks and whether anything can legally be run in them.
- Ask the utility how many separate meters they will set on one parcel, and what the tap fees are per meter.
If the answers kill unit three, you found out for the cost of a survey instead of a change order.
City Code vs. the International Building Code
Donohew built portions of that project to the International Building Code, and the city then came back and said its own requirements differed. Work had to be redone. On a fixed-price contract, that rework came out of his margin.
Jurisdictions adopt model codes with local amendments, and those amendments are where the surprises live. The IBC is a starting point, not the governing document. The governing document is whatever edition that specific city adopted, plus the local modifications, plus whatever interpretation the plan reviewer applies.
He is blunt that difficulty varies sharply by jurisdiction — some Northwest Arkansas cities are far harder to build in than others, and his first build landed in one of the hardest. Two cities fifteen minutes apart can have materially different review timelines, inspection standards and amendment lists.
Before you draw plans, get in front of the building department with the specific parcel and the specific configuration. Ask which code edition they are on, ask for the local amendments in writing, and describe the attached-plus-detached ADU arrangement out loud so a reviewer can tell you now rather than at inspection. If you are considering two neighboring cities for the same strategy, the easier jurisdiction is worth real money.
Build the jurisdiction’s difficulty into your bid. Two projects with identical scopes in different cities are not the same project.
Pricing the Build: Fixed Price, Overruns and Contingency
Donohew quoted a fixed number on that first build and held to it. He went over, and he absorbed roughly $10,000 to $12,000 of the overage himself. The owner volunteered to cover the sod, which means the true gap was somewhat larger than the number he ate. He treated the loss as paid education and moved on.
Holding your word on a quoted number is a business decision, not a budgeting strategy. The budgeting strategy is the set of rules he arrived at afterward, which apply equally to rehabs and ground-up infill:
- Carry at least 10% contingency, and often more. No rehab budget is ever exactly right. It comes in higher or lower, and in practice it comes in higher.
- Never take the first contractor. He did this repeatedly early on and it cost him. The first bid is almost never the right price.
- Estimate costs high and profits low so that surprises are good ones.
On the classic tradeoff between price, quality and time, Donohew’s position is that you get the price and the quality right, and if you only get one, get the quality. Cheap work comes back. A callback on a rental you own is a cost you pay twice, and on a build you sold it is a cost plus a reputation problem.
One more variable he lived through: he started in 2019 and COVID hit in 2020, moving both material prices and labor availability mid-project. A fixed price with no escalation language carries that risk entirely on the builder.
Financing the First Deals Before You Have Capital
Donohew’s first distressed acquisition was funded by a private lender he had never met, three hours away, found through a friend after he had already committed.
The sequence: he pulled foreclosure notices from the county and state newspapers and started Facebook messaging owners directly. By 6 a.m. one had responded. The owner needed to close in 10 days because the property was headed to auction. Donohew offered $175,000 cash, as-is, 10-day close — then left the house and panicked, because he did not have $175,000.
He called everyone he knew. A friend referred him to a lender in Little Rock, three hours from Northwest Arkansas, who funded the full $175,000. Donohew repaid roughly $195,000. The property was worth $265,000 to $275,000.
Two things worth separating out of that story. First, the terms he offered — cash, as-is, 10 days — are what made a pre-auction seller take the call. That speed is the product, and it is worth more to a seller facing a foreclosure date than a higher price with a financing contingency. Second, the capital followed the deal, not the other way around. He found a contract good enough that a stranger would fund it.
He also bought a hoarder house subject-to, taking over the existing mortgage. Both of those first two properties needed only $10,000 to $15,000 in cosmetic work.
The honest part: after that first win, it took him roughly 500 touches to land the next deal. One lucky inbound reply is not a pipeline.
Frequently asked questions
Can you legally put both an attached and a detached ADU on one small lot?
In many jurisdictions yes, and Donohew built exactly that — a single-family house with an attached ADU plus a separate detached ADU — on an 8,000 square foot lot in Northwest Arkansas. Whether your city allows it depends on its zoning text and any recent ADU ordinance changes, so confirm with the specific jurisdiction before you buy.
Note that this is not the same as a triplex. It is a primary residence with two accessory units, which usually sits inside single-family zoning rather than requiring a multifamily entitlement.
What is the most common technical problem on small-lot ADU infill builds?
Getting utilities to the rear unit. On Donohew’s build, five-foot side setbacks on both sides left no room to run services around the structures, so the sewer and water lines for the detached rear ADU had to run underneath the front house and its attached ADU.
The hardest piece was getting the sewer line to fall from the rear unit all the way to the street with adequate slope. Shoot the grade and locate the main before you contract on the lot.
How much contingency should you carry on a rehab or infill build budget?
At least 10%, and Donohew’s advice to early investors is often considerably more. His experience across nine flips and his first ground-up build is that the rehab number is never exactly right, and in practice it comes in high rather than low.
He pairs that with two habits: estimate costs high and profits low, and never accept the first contractor bid.
Does each ADU need its own meter to be rented separately?
Separate metering is what makes independent rental practical, which is why the owner on Donohew’s project insisted all three units be individually metered so each could be rented on its own. Tenants then pay their own utilities and each unit stands as its own economic entity.
Metering requirements and the number of meters a utility will set on a single parcel vary by provider and jurisdiction, so confirm both the policy and the tap fees per meter during your due diligence.
How do you fund an infill or foreclosure purchase when you don’t have the cash?
Private lenders and subject-to acquisitions. Donohew committed to a $175,000 cash, as-is, 10-day close on a pre-auction property with no money in hand, then found a private lender three hours away who funded the full amount; he repaid roughly $195,000 on a property worth $265,000 to $275,000.
He also acquired a hoarder house subject-to, taking over the seller’s existing mortgage. Both paths depend on having a contract with enough spread that a lender or seller sees the deal as safe.
The bottom line
Before you put a small infill lot under contract, spend the money on a survey and a sewer invert check, and sit down with the building department about that specific parcel and configuration. Those two steps cost a few hundred dollars and decide whether you have a three-unit deal, a two-unit deal, or a rework bill you cannot bill back.
