How to get 200k loan to complete an ADU?

Los Angeles County, California
Land & New Construction
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How to get 200k loan to complete an ADU?

Cesar Garcia
Los Angeles, CA · Member since 2020 · 10 posts · 3 votes

Hello fellow real estate friends. I need help and guidance, at the moment I'm running a project in Los Angeles to build an ADU. We are short 200k for the project and cannot use HELOC anymore due to a previous cash out refinance 6 months ago so our equity is low. Can anyone share any tips on how to get 200k loan to complete the project without using our homes equity since it's very low now.
- best regards ! 

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Jonathan Taylor
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
4y

@Cesar Garcia Talk with contractor/ADU builiding companies as they sometimes offer financing for ADU builds. Rates and terms vary as Im not an expert since this is a direct to consumer lending product (Im a broker). The challenge with 'Value Add" ADU builds is the ARV is going to be much less than the cost of building it. I converted my Garage into a permitted ADU, cost me 80k (as is conversion, no added sq ft) and the appraiser added 20k in property value. The tricky needle to thread is to not get a bridge or short term loan since refinance to capture the perceived ARV isn't realistic and would set you up for failure. Just be careful, A lot ( and I mean A LOT) of people think if you have a SFH and add an ADU, comparable sales are duplexes. This is not true. Comparable sales are SFH with a garage since rental income is not how this asset is valued and the original Zoning is SFH.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Cesar Garcia

    Can you qualify for a construction loan? I would speak to some local lenders and also maybe look at private $.

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  • Jordan Bigler
    Member since 2022 · 11 posts · 2 votes
    4y

    I know for a construction loan you might need a contractor to sign off on the cost estimate for the build. Then the bank may loan you the construction loan. 

    Send me a private Dm, my boss is a contractor in the area, we might be able to help.

    One caveat I will say is that cost to build is a little higher with materials and delays right now so double-check your budget from your contractor. I would hate to see you get to the end of a build and not have the finishing finances. 

    0Reply
  • Jordan Bigler
    Member since 2022 · 11 posts · 2 votes
    4y

    I know for a construction loan you might need a contractor to sign off on the cost estimate for the build. Then the bank may loan you the construction loan. 

    Send me a private Dm, my boss is a contractor in the area, we might be able to help.

    One caveat I will say is that cost to build is a little higher with materials and delays right now so double-check your budget from your contractor. I would hate to see you get to the end of a build and not have the finishing finances. 

    0Reply
  • Pavan Sandhu
    Developer · Sacramento, CA · Member since 2016 · 464 posts · 143 votes
    4y

    You're going to have to piece a few different loans together unless you do a construction loan that wraps your first and a new second into one. 

    0Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    4y

    @Cesar Garcia I have done ADU financing via construction loan and use the future value to meet the LTV requirements. Your current 1st and HELOC (if there is one) would be replaced with the construction loan. Once construction is done, then you will be refinanced into an end loan.

    Reach out if you are interested in discussing.

    [email protected]571-200-6180
    0Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    4y

    @Cesar Garcia Talk with contractor/ADU builiding companies as they sometimes offer financing for ADU builds. Rates and terms vary as Im not an expert since this is a direct to consumer lending product (Im a broker). The challenge with 'Value Add" ADU builds is the ARV is going to be much less than the cost of building it. I converted my Garage into a permitted ADU, cost me 80k (as is conversion, no added sq ft) and the appraiser added 20k in property value. The tricky needle to thread is to not get a bridge or short term loan since refinance to capture the perceived ARV isn't realistic and would set you up for failure. Just be careful, A lot ( and I mean A LOT) of people think if you have a SFH and add an ADU, comparable sales are duplexes. This is not true. Comparable sales are SFH with a garage since rental income is not how this asset is valued and the original Zoning is SFH.

    1Reply
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