Retiree (Not Me Yet) with Paid Off House Wants to Finance an ADU

[Nicholas LaGatta]

Hi BP,

I have a retired neighbor in an in-town historic Atlanta neighborhood that's paid off his house and now he's looking to finance building an Accessory Dwelling Unit (ADU) that he can rent out for supplemental income. He's got modest but steady retirement income, 750s credit score, and minimal debt. The house recently appraised for around $350k in current condition and the ADU would cost around $125k.

He's done some preliminary research and has found a 2nd mortgage will be easier to get than a construction loan or HELOC. I'm going to talk with him tomorrow morning about some considerations for finance and construction and I'd like to crowd source some ideas.

What do you think is the best way for this guy to finance the project?  What kind of interest rate could he expect?  What are some other finance considerations we should talk through?

Thanks in advance!