How to structure a loan from a friend for duplex/ADU?

[Jonathan F.]

I recently bought a small house (my principal residence) in a hot Portland neighborhood with hopes of making it a legal duplex by converting the basement to an apartment. Let's say this costs $100K to do properly (soundproofing, separated utilities, quality fixtures, etc.).

I don't currently have access to enough home equity to fund this project, but I have a friend who may be interested in lending me the money for a short period. Any thoughts on how best to structure such a loan, and how to plan for paying it off after a 6- or 12-month period? My friend would want a good ROI, and I would want it to be worth his while. My thought is that once the basement is built out, the property could be re-appraised and I could then move my debt to a low-interest HELOC. But this would need to be more than a hypothetical if I'm counting on it as part of the overall plan.

Advice, ideas, warnings?