Appraisals, DSCR loans and ADUs

[Josh Green]

Hi All,

I've been looking at a single family property with a detached ADU (has 2 units!). The adu is not permitted and I was looking to purchase this with a dscr loan. Anyone have experience with appraisers and how they consider the ADU in both a comp sale approach and for the 1070 estimated rents?

[Robin Simon]

Quote from @Josh Green:

Hi All,

I've been looking at a single family property with a detached ADU (has 2 units!). The adu is not permitted and I was looking to purchase this with a dscr loan. Anyone have experience with appraisers and how they consider the ADU in both a comp sale approach and for the 1070 estimated rents?

As a DSCR lender, we really have to stick to the appraisal determination of the property, and they will most likely flag the unpermitted nature of the ADU and not include it in the value and the DSCR calculation as rental income. Lenders need to underwrite the loan to conservatively project how it will perform (including if we need to foreclose and operate the property) and it would be foolish to count on unpermitted income/value to make the deal work. Equity investors like yourself can take that risk and it might make sense, but since lenders have no upside in deals, that risk equation doesn't make sense for us