ADU Construction funding, No equity

[Michael Woods]

I recently purchased a property with enough room for an ADU in the San Diego County. There are a lot of advantages to building an ADU right now and I want to get started. I essentially have no equity but have 30k cash. How would I go about finding the right loan to fund the construction?

I have planned on registering for a business to collect rent for the future, is there a way to fund the construction through a business loan, or is that even a thing?

[Justin R.]

@Michael Woods Just to be clear, the "major discounts" relate to impact fees, which are the same whether you are converting an existing detached structure (like a garage) or building a new structure.  Converting a garage will most certainly be cheaper, though of course you lose a garage and it may not be the best use of the land area.

On your original question, though ... these sort of smaller balance, no collateral construction loans are really risky and therefore hard to come by if you want any sort of attractive terms.  Assuming an 800sf building, I'm guessing you'll need in the neighborhood of $130k on top of your $30k.  I would start by considering people who love you and could loan you money because it makes them feel good (their target return: happiness).  Then, I'd consider any sort of small bank or credit union I have a relationship with (target return: 7%).  Then, I'd consider the people who make a business out of installing and financing ADUs (target return: 12%).  If you still don't have a solution, I'd consider a private lender (target return: 20%).