California ADU Construction Financing

2 Replies

Project ADU Add

Currently I have a property in California I'm looking to build two ADU. Should I use HeLOC, Construction Loan or Hard Money to build? I'm on a 2% 30 year fixed loan I have good credit, I owe $240K current Value $900-1 Million. ARV for 4 units not rehabbed is 1.4 . I plan on keeping unit for appreciation & Cash flow but for the right price I'll sale after I add ADUs. This is an owner occupied property Rents total $3,500 currently, with 2 ADU Additions rents total $9,500

I found credit union that will do 80% LTV up to $500K on HeLOC. 10y interest / 25 year loan adjustable rate

Construction Loan

With a construction Loan I heard they wanted 20 % down that I don't have.. I heard I could use my property as the 20% down. I have a three unit now with adding two more ADUs rents (2) 2+1 (1) Studio (2) 3+2 ADU total rent = $9500. An Investor I know told me to get a construction loan, I need to find a bank who would let me use my property as the %20 down.

Hard Money

I have another friend who says he uses a hard money lender because he doesn't want to show his money for tax purposes and its easier. I know he pays a higher rate than equity line maybe 9-11% I guess it works for him. I'm just wondering is it good to take a hard money loan on a construction project adding sqft 350 to a garage and building 1000sqft 3+2 ADU? Is that a good model to use when building?

Hard Money

I was told to get the hard money so I can do two projects at once. Get a construction loan take half for building on one property and the rest buy another property and do the same thing use the other money for the down on the other project. Then get a loan on that property and do it all over again. The only catch to this strategy is you have to refi out of the 1.4 loan in a year or 18 months, I was told if I can't qualify for 1.4 refi then I need a partner to help me with it... that's the part that I don't like.

Can someone help me with some great advice I would like to do this multiple time, I just need to know which strategy to move forward with. If anyone knows how to do one of these strategy please share..

Thanks in advance

Heloc #1 choice. All day everyday. Don't jepordize your great 1st mortgage. Use a heloc, pay it off, and use it again and again. There are some renovation/hard money type of loans but they refinance your first mortgage 99% of the time.