SFR w ADU, $1.8k cash flow, 400k equity investment prop in SD...

[Christopher Rodriguez]

...that's what we 'own'. We just bough an SFR, R-2 zoned, on a 17k lot in east San Diego. We're hoping to add a unit, to make this a duplex, then add an ADU, and eventually rent all three. Open to ANY advice folks on here might have. First obstacle is funding. Should I HELOC the investment prop to fund building or is that a bad idea because it will take several years to pay off the building costs? We're not sitting on any other piles of cash. We are looking into the new ADU grant but aren't counting on it. I know RE is generally speculative and is even more dicey with a big grey cloud hanging over all of us, but we bought this lot to facilitate a growing family, but also allow us to build and rent out. Thanks in advance for reading and sharing insights! ! ! !

[Erik Browning]

@Christopher Rodriguez so for the ADU grant, the thing they don't tell you is that after CalHFA helps you finance the repairs, you have to refinance the whole thing into a loan with one of their preferred lenders. It works out for some people, but mostly (what I've seen, anecdotally) for lower cost of living counties - which San Diego is not. You probably have a killer rate on your investment property and don't want to refinance an extra $200k (ADU construction) + your principal amount position into a 7% loan.

Also, HELOCs for investment properties (while they do exist) are much more strict on funding. I've seen some that require that your Combined Loan to Value (CLTV) is at 60%! While you may have that, it will limit your capital you can use to build the ADU. Home Equity Loans go up to 90%, however they have a higher, albeit fixed, rate and monthly payment which is amortized.

I'm still bullish on RE and think is still an exceptional long term investment. Blue skies and rainbows over here, no gray clouds.

[Christopher Rodriguez]

Holy s--t, how could they expect you to mess with your original loan? What does that have to do with the ADU or the grant? Yes, you're right, we're somewhere in the low 3's on the primary but I can't recall the exact rate. I also thought this was a relatively new development, so I'm surprised you have this much feedback from folks who have either researched or gone through the process.

Regarding the HELOC, it does seem like slim pickings on number of banks/credit unions who do this and their restrictions. The HE Loan is an option but with a build scheduled not likely for many months, due to contractor availability and the permitting process, we'd immediately begin paying the monthly and interest.

Our LTV is around 60%. owe 630k and the property is valuing just over 1m.

I noticed you're a military investing contributor. Not really sure what that means but we did use the VA loan on the first SFR, then financed into a traditional, to open up the VA loan for our current property.

Still not sure what the best play is here to gain funding without being subject to a bunch of bogus restrictions. But I do want to get some drawings into the city soon and lock in a contractor