ADU Build + Financing

[Kyle Holden]

Questions for the community about ADU builds:

1) It seems that building an ADU does not add $:$ equity value to your existing property. On average, the numbers I am finding show a $0.50-0.70 equity increase per $1 invested. If building an ADU is a way to "force equity," it seems to be an inefficient way to do so. Can anyone speak to why this is?

2) Due to #1 above, I have found that the majority of lenders will not lend to build an ADU based on the post-build appraisal (companies like RenoFi are helping rectify this). They will lend against the current equity on property via a second mortgage or HELOC. Does anyone know of other lenders (beside RenoFi's lending network) that will lend against post-build appraisal?

Context - My wife and I own/live in a property in downtown Raleigh, NC. We are looking to build an ADU on our property (above a garage) to use as a STR/MTR. Design/Engineering and build estimates are complete. Exploring financing at this moment.

[Chris Martin]

Quote from @Kyle Holden:

*I guess I have two BP accounts - posting again from correct account*

Thanks Ben! I’ll look up Derek.

The goal for building has always been CF but when trying to finance, not being able to get what I’d consider proper equity value can be frustrating.

We got quotes form several builders - $195-225k before fixtures and furnishings (so assume $220-250k all in) - for a 430 sqft ADU above a 430 sqft garage

Well, at $512 to $581 cost per square foot I would think that kind of improvement would not add comparable equity. I am not surprised a traditional lender would not be interested. 

ADUs make sense in some places, but the more I learn, the less I feel they are appropriate when considering the total cost/reward analysis. 

As stated by others, get multiple bids and compare apples to apples. 

One other comment I'll make: don't compare Raleigh to San Jose or other jurisdictions because the ordinances and rules are not the same. I've been helping a family member with sale of a SJ property (house and sub-divided lot), and it is night and day. SJ has 0' setbacks on urban zoning (e.g. CP zoning) and per my relative's email, "The new urban zoning designations also allow for no setbacks, no driveway, and no parking...." My view is that these changes represent more than valuation today, more like what will urban residential look like in 10 years.