Strategy for Analyzing an ADU
Greetings all,
I'm considering a home renovation loan to convert my garage into an Accessory Dwelling Unit (ADU). The loan will change my current interest rate, so I want to make sure that the return is worth doing the renovation loan. Is there a Bigger Pockets or other tool (i.e. Rental Property Calculator, Mortgage Calculator, etc.) available for running the numbers for an ADU done through a Home Renovation Loan?
Hey there! What's your current interest rate in your loan? They're quite high currently, so you might want to keep it locked at a lower rate and try for a HELOC? Is there equity in the house? Send me a DM and I can get you a good HELOC guy that is doing mine right now!
@Andrew Tyree Mind if I send a DM and get that contact as well? We are always looking for good people to send our ADU clients to.
Of course! I’m here to help.
Quote from @Christian Cambridge:Hi Christian, I've heard of a few appraisers not increasing the value of the property equal to the cost of the ADU - being less which could be a problem if you are trying to value add and pull cash out. The ADU is great idea for cash flow and you can find comparable by looking what is on the market. What is your strategy for this ADU? I think ultimately when you want to sell the property the right buyer will pay extra for the ADU either for in laws, rental purposes, or some type of guest house.
Greetings all,
I'm considering a home renovation loan to convert my garage into an Accessory Dwelling Unit (ADU). The loan will change my current interest rate, so I want to make sure that the return is worth doing the renovation loan. Is there a Bigger Pockets or other tool (i.e. Rental Property Calculator, Mortgage Calculator, etc.) available for running the numbers for an ADU done through a Home Renovation Loan?
Quote from @Andrew Tyree:
Hey there! What's your current interest rate in your loan? They're quite high currently, so you might want to keep it locked at a lower rate and try for a HELOC? Is there equity in the house? Send me a DM and I can get you a good HELOC guy that is doing mine right now!
Hi Andrew, I'll message you.
Quote from @John Clarken:
Quote from @Christian Cambridge:Hi Christian, I've heard of a few appraisers not increasing the value of the property equal to the cost of the ADU - being less which could be a problem if you are trying to value add and pull cash out. The ADU is great idea for cash flow and you can find comparable by looking what is on the market. What is your strategy for this ADU? I think ultimately when you want to sell the property the right buyer will pay extra for the ADU either for in laws, rental purposes, or some type of guest house.
Greetings all,
I'm considering a home renovation loan to convert my garage into an Accessory Dwelling Unit (ADU). The loan will change my current interest rate, so I want to make sure that the return is worth doing the renovation loan. Is there a Bigger Pockets or other tool (i.e. Rental Property Calculator, Mortgage Calculator, etc.) available for running the numbers for an ADU done through a Home Renovation Loan?
Hi John, I'm planning to move my mom/grandma into the primary and move into the ADU once completed as I don't need much space. Not sure how much this will increase my mortgage which is why I'll need to run numbers ahead of time. I don't see myself selling the home anytime soon, but want to make sure I have enough to put down on another home once I start at family.
Thanks @Andrew Tyree -- just sent a message.
@Christian Cambridge if you have any questions about ADU design, permitting, or construction, please feel free to reach out. Happy to help if we can -- we've done a bunch of garage conversions throughout the city/county.
I did the FHA 203(k) to convert my garage into an ADU. You do run into a couple of roadblocks:
1. It has to appraise. The cost to convert a garage in LA is now around $150K, but appraisers are only giving a value between $50,000-$75,000. Therefore you are going to be short.
2. The payout situation is difficult. Your contractor is going to get made because the checks come slow and low in the beginning.
I agree with the above, if you have the equity, do the HELOC. This way you are only paying out base on what you use.
Quote from @Rick Albert:
I did the FHA 203(k) to convert my garage into an ADU. You do run into a couple of roadblocks:
1. It has to appraise. The cost to convert a garage in LA is now around $150K, but appraisers are only giving a value between $50,000-$75,000. Therefore you are going to be short.
2. The payout situation is difficult. Your contractor is going to get made because the checks come slow and low in the beginning.
I agree with the above, if you have the equity, do the HELOC. This way you are only paying out base on what you use.
Thanks Rick, this is very good insight. I purchased the home in Dec 21 so there isn't much equity yet. I was hoping to get the CalFHA grant, but that didn't come to fruition and I don't know the next time it'll be available. I'll need to put a lot more thought into my next step.
Quote from @Alex Otto:
Thanks @Andrew Tyree -- just sent a message.
@Christian Cambridge if you have any questions about ADU design, permitting, or construction, please feel free to reach out. Happy to help if we can -- we've done a bunch of garage conversions throughout the city/county.
I appreciate the support.
Quote from @Christian Cambridge:
Quote from @John Clarken:
Quote from @Christian Cambridge:Hi Christian, I've heard of a few appraisers not increasing the value of the property equal to the cost of the ADU - being less which could be a problem if you are trying to value add and pull cash out. The ADU is great idea for cash flow and you can find comparable by looking what is on the market. What is your strategy for this ADU? I think ultimately when you want to sell the property the right buyer will pay extra for the ADU either for in laws, rental purposes, or some type of guest house.
Greetings all,
I'm considering a home renovation loan to convert my garage into an Accessory Dwelling Unit (ADU). The loan will change my current interest rate, so I want to make sure that the return is worth doing the renovation loan. Is there a Bigger Pockets or other tool (i.e. Rental Property Calculator, Mortgage Calculator, etc.) available for running the numbers for an ADU done through a Home Renovation Loan?
Hi John, I'm planning to move my mom/grandma into the primary and move into the ADU once completed as I don't need much space. Not sure how much this will increase my mortgage which is why I'll need to run numbers ahead of time. I don't see myself selling the home anytime soon, but want to make sure I have enough to put down on another home once I start at family.
I think that is a great idea. I'm doing the same for the in-laws! Good Luck!
Quote from @Christian Cambridge:
Quote from @Rick Albert:
I did the FHA 203(k) to convert my garage into an ADU. You do run into a couple of roadblocks:
1. It has to appraise. The cost to convert a garage in LA is now around $150K, but appraisers are only giving a value between $50,000-$75,000. Therefore you are going to be short.
2. The payout situation is difficult. Your contractor is going to get made because the checks come slow and low in the beginning.
I agree with the above, if you have the equity, do the HELOC. This way you are only paying out base on what you use.
Thanks Rick, this is very good insight. I purchased the home in Dec 21 so there isn't much equity yet. I was hoping to get the CalFHA grant, but that didn't come to fruition and I don't know the next time it'll be available. I'll need to put a lot more thought into my next step.
Then here is what I would do. Consult an architect and pay to have the plans drawn up and submitted to the City. Find out when the permit expires (I believe it is a year but double check). That gives you one year to come up with the money while not having to be stuck with new building codes by the time you build.
You can probably just use the BRRR or Buy and Hold cal and use the renovation cost in there to give you the proper yield for the renovations.
