Finance options on an ADU

[Tyler Smith]

I recently bought a single family 3/1 home in central Texas and am using the BRRRR model.

Paid cash, $155,000. Rehab was $80,000. All in $235,000. Appraisal just came back at $315,000 and my cash out refi would be 75% pulling back out $236,250. (I haven't done this yet, I just got the appraisal back).

The lot is large enough to accommodate an ADU. It will probably be a 2/1 with a new construction cost of somewhere in the $150k range. I would more than likely Airbnb this ADU.

My question is how should I finance? Should I use the cash out money and pay cash for the ADU build? Should I get a new construction loan? Should I use the SFH 3/1 as collateral on the new construction loan?

This would be a first for me so any feedback is appreciated!