Quick story to get you up to speed. My Wife and I have finally rented our townhome as our first property. We moved into my mother-in-laws walkout basement, not before completely gutting it and adding a kitchen. So we are paying a very small amount for rent now and looking to build our rental portfolio.

Here's the ADU part...

My mother-in-law's home s located in Golden, CO. A very solid market for rentals for both college students and/or professional peeps just wanting to live in Golden. Renting our townhome, we had to give up our garage, which I was unwilling to do. So original plans were to build a garage on the mil's property. But, of course, with our mind set on building a rental portfolio, and the market we live in, it didn't make sense not to add an apartment over the garage to create cash flow for the mil to cover her expenses and travel as she's always wanted to.

So, here we are, moving forward, plans in place, ADU permit acquired, ready to break ground and having trouble getting the Mil financed.

First attempt was to get a Heloc loan, keeping it separate since she has a great rate on her first. But they would only go to 15 year term creating a monthly payment that was too high. We then tried to refi the entire home, taking cash out to cover the build. But the mil is on a fixed budget, retired and does not meet the DTI. My wife tried co-signing, but now the bank wants me as a co-signer too. We don't want to tie up our ability to gets loans since we're trying to build our portfolio.

So, I'm looking for advice on ways to fund this project. After it's built and we have renters in place, it will cashflow enough to pay the entire mortgage plus some.

Also, the home has a tremendous amount of equity and will be even more after the ADU is built, not to mention the newly finished walkout basement. My mil has excellent credit, 800+, with no debt.

Any ideas on how make this happen.

Heloc would be great, but the 15 year term makes the payment too hight.

A 3-1 ARM would work, with co-signer, as we would refi after the second year with solid rental history adding to my mil's income so she would qualify at that time.

Below are some quick numbers for this project

$180k - ADU Budget
$142k - Current mortgage
$942 - Current monthly mortgage
$585k - Current Value of home/property (no including basement refinish or ADU/Garage)

$1800 - market rent on ADU
$500 - current walkout basement rent ($1200 market)
$2200 - mil's fixed budget (PERA retirement