Financing
Case Study
We ran a detailed financial projection on building, financing and renting out our 2 Bedroom, 2 Bath, ADU communal Model in San Jose and the returns were very strong.
The projected rent for the 616 sq. ft. unit is $2500/month.
The all-in cost to build this (fully loaded) ADU is projected in the mid $200,000 which sounds like a lot, but when financed at 90% Loan to Cost, creates a monthly payment approximately $729 on a 30 year period.
PREFERRED FINANCE PARTNERS
What loans work an Accessory Dwelling Unit (ADU) or Guest House?
Thinking of adding/converting a dwelling or living space on your residential property for a relative or as an investment?
ADU FINANCING
In lieu of a Home Equity Line of Credit, a Renovation Loan might be the best way to finance your ADU.
Renovation loan appraisals are based on the “As-Completed” value of the home. So if the home will be worth $550,000 once the ADU is complete, the renovation loan will lend up to 95% of the “As-Completed” value, or $522,500. This gives you $210,000 available to build the ADU.
Knowing the high price of real estate in Bay Area, California this opens up a lot of opportunities to finance much or all of the cost of your backyard home.We have partnered with lenders that specialize in delivering the best options for financing your ADU. Fill out the form below to have our preferred lender contact you with some options.
Another way is to borrow against your 401(k) account for an amount between $200,000-$250,000.
There are also loan products like home equity lines of credit (HELOCs) or you can do a cash-out refinance. This will be pretty straightforward for people with existing equity in their homes.
Another way is to get construction loans or renovation loans by borrowing on the furture value of the home. Personal loans are also an option where you borrow against your credit score or income. Or you can get a home equity co-investment.
A new law allows homeowners to sell ADUs like condos, boosting homeownership. Here’s how AB 1033 works:
BY KAREN GARCIA | STAFF WRITER
OCT. 14, 2023 6 AM PT
Accessory dwelling units, also referred to as ADUs and “granny flats,” have been available in California only as rentals. But a new law, Assembly Bill 1033, is giving Californians the opportunity to buy and sell them as condominiums.
ADUs come in all shapes and sizes — for example, a converted garage, a small home in the backyard, or, as often seen in San Francisco, an unused portion of the main house, said Assemblyman Phil Ting (D-San Francisco), who drafted the legislation.
Under AB 1033, which was signed into law this week, property owners in participating cities will be able to construct an ADU on their land and sell it separately, following the same rules that apply to condominiums. It gives homeowners more options for building on their property, and “the hope is, it would create more homeownership,”said Ting.
Under the new law, local governments need to opt in to the ADU-as-condominium approach for it to be an option in their cities.
Here’s how the new rules will work in participating cities:
As with new condominiums, homeowners building ADUs must notify the local utilities, including water, sewer, gas and electric, of the creation and separate conveyance of the unit. Each property will also have to form a homeowners association to assess dues to cover the cost of caring for the property’s exterior and shared spaces, such as the driveway, a pool or a common roof.
Similar to condominiums on one property, the home and the ADU will have two different property taxes, Ting said.
He says he believes that many of the initial ADUs going through this process will be sold to the family members or close friends of the homeowner.
“And then as people are more comfortable with this and you see more ADUs being sold, and it’s more prevalent, then I could see this being more of a traditional real estate transaction,” he said.
Meredith Stowers, a loan officer at CrossCountry Mortgage in San Diego who specializes in ADUs, said AB 1033 benefits both homeowners and new buyers.
“The typical homeowners we see are retirees who have long since paid off their mortgage, but are maybe living on a pittance of Social Security and meager retirement funds,” she said.
Under this law, the retirees can earn supplemental income and young families can buy an affordable starter home.
Stowers said the problem that retirees are facing is that, “after so many years of loan modifications in high rates, it doesn’t make financial sense for the retiree to move out of their home.”
She argues it’s more expensive for them to downsize to a smaller house, and this new piece of legislation opens opportunities for retirees to leverage the equity they’ve built up in their homes while also creating affordable housing.
“We’re even seeing some retirees add ADUs in their backyard that they then move into and potentially selling off their home,” she said.
Selling ADUs as condominiums is having success in places such as Oregon, Texas and Seattle.
When Seattle removed regulatory barriers that discouraged property owners from constructing ADUs in 2019, the city issued nearly 1,000 ADU permits, more than four times the number permitted in 2018, according to a report released in March.
The report also found that in 2022, the city permitted 437 attached ADUs and 551 detached ADUs, which it referred to as backyard cottages. Just under half were on sites with multiple ADUs and one-third were part of a development that included a new single-family residence.
Included in the report were sample sales for neighbor residential parcels with detached ADUs, reporting that a unit of more than 1,000 square feet sold for an average of anywhere between $500,000 to $800,000.
ADDITIONAL PARTNERS
Renofi
Contact: madelyn@renofi.com
Phone: 267-668-2844
Borrow up to 90% of your future home value with a Renofi Loan.
Terms up to 20 years.
No refinancing required.
10 x easier than a construction loan.
Please Note: All sizes and dimensions are nominal or based on approximate builder measurements. 3D Tours and photos may include dealer and/or factory installed options. Perpetual Homes reserves the right to make changes due to any changes in material, color, specifications, and features at any time without notice or obligation. Homes may require optional features to be eligible for financing, consult with your retailer for more information.
T: (925) 309 0205 E: Perpetualhomesadu@gmail.com
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Perpetual Homes representations and the actual look of your ADU may vary. The measurements provided will make up the floor plan approximating the length and width from exterior wall to exterior wall. We will continue to invest in our product and process improvements. Our models, floor plans, specifications, dimensions, features, materials, appliances, furniture, and availability displayed on our website and/or other marketing platforms are subject to change.
The project timelines and schedules provided are based on our research and knowledge but it does not account for unforeseen city, town, county, state and/or other municipal agency (collectively the Government) processes such as, but not limited to, appeals, special permits, or processing delays. The portions of the timelines relating to the Government can and will change without notice. The project timeline/process is based on the assumption that the customer will be available and able to make quick decisions. Perpetual Homes cannot guarantee and/or be responsible for the time it takes the Government to complete its checks and verifications. Construction timelines are estimates and cannot be guaranteed by Perpetual Homes.
For the avoidance of doubt, Perpetual Homes is not a licensed general contractor. All of the construction jobs associated with the project which require a licensed general contractor will be performed by a licensed contractor who will engage with the property owner directly with applicable law.