Multifamily ADU Construction Financing Southern California

[Nick Boring]

Hello BP! 

Here is a quick summary, my partner and I are in Southern California and we completed our first ADU project around 6 months ago. The project turned out great and we are looking to start our next one in the next couple of months. The first time around we used a conventional loan to purchase the property and then we used cash to build our two ADUs.

We are looking to take on a bigger project and will be needing a few different loans: Acquisition, Construction, Permanent. I think the best we can do is acquisition and then do some sort of construction to perm loan. In a perfect world we could find a lender that will work with ADUs that can bundle all these loans together to simplify our financing and save on some closing costs.

Here are a few more details. Acquisition will most likely be between $800k and $1Mil. Construction costs will be $600k to $1Mil depending on how big of a project we take on. Permitting time is around 6 months and construction will be 12 months.

Any advice on specific lenders or financing strategies would be appreciated! 

Thank you!

[Caroline Gerardo]

Six months to get approved permits is not in any metro city in CA. The ADU's have their own plans but you need architectural site and elevation drawings. Often the planning desk makes you change or tweak things. Before you close on the buy go to planning office usually in city hall in person belly to the desk and show them your ideas.

With that in mind do a conventional loan as a purchase, close and start the permitting process. Then apply for second construction loan to buy the units, install foundations/tie ins... 

Only way around it is to go to some of the shops that offer a 12 or 24 month loan based on the ARV. Then refinance the finished product if you can meet the time frame without paying huge extension fees.

Since you are paying for points, underwriting/processing, appraisal, title, settlement, stamps, transfer, notary... twice it's going to be expensive. Add $12000 for the two loans into your numbers.

OR

There are some ADU and prefab companies offering their own financing. Do the purchase loan and then take the ADU loan as a second. Cost in total loan and ++ fees about $9000 because the second loan is smaller.

After you apply for the second step, whatever way you go, make sure you get a line of credit/credit card with $20000 available for the extra overruns. Keep your FICO up by paying credit cards twice during that middle period as you need high scores to make this work.