Funding for ADU in backyard of Primary Residence

[Brook Alexander]

Hey everybody! This is my first posting in here. I'm hoping to get a couple different perspectives on a particular strategy, so I'm looking forward to any and all advice offered! My wife and I are looking into building and ADU in the backyard of our southern Cali home. We briefly considered selling our house and using the profits to buy a multi family property, but figured it'd be best to stay and build a unit instead (it's a HUGE backyard). We got a quote for about 175k- 200k for a 700 sq ft unit to be built. We DEFINITELY don't have that money lol, we have equity in our house but not enough to cover that amount, and we looked into hard money lending, but all of the lenders I came across don't offer lending on owner occupied residences.

Any other creative ideas on who/where/how to get funding for our ADU project?? Thanks in advance everyone. Might be a stupid question, but maybe there's an option I haven't come across yet and someone out there has an answer!

[Kevin Purvis]

Hi Brook,

I have built ADUs in SoCal (most in the inland empire).  that price is normal for stick built.  Have you considered attaching a manufactured home?  Most renters (or even buyers). it wouldn't be able to tell the difference if you have decent upgrades.  And you save maybe 30 to 50% on the cost.

You'll also find that many banks are not really willing to lend on this.  however you will be able to get a cash out refi after this is all over.  if you are in a higher cost area like Los Angeles you should easily be able to get hard money lending for this.  you can demonstrate the debt service coverage ratio pretty easily.  you will need okay credit and maybe 20% of the cost of the build in cash in order to attract lenders.  

there are also ADU builders who will finance directly with you. I've never used them but I've heard of one called United. and they're in Los Angeles. maybe check them out and see if it works for you.