How to finance Secondary Dwelling?

Question

I'd like to build a Secondary Dwelling/Granny unit at my current property on the Central Coast of CA.  Thinking long term, what’s the smartest way to finance this project? I would assume I need to save up more money, but how much would you want to see in your account before building this secondary unit and what type of financing would you utilize?

Location: San Luis Obispo, CA County

Project

-Cost of construction approx. $200,000

-800 Sq Foot 2 bed/1 bath

-Estimated Rent $1,500-$1,700/month

Personal Assets

-SFH -Primary Residence on One Acre

-Last appraised $550,000

-Amount owed $390,000

-No other significant debt

-Credit score 770-780

-401k-$48,000

-Investment account-$31,000

-Income $100,000/yr

Ben Tilbury · Answer

Hey @Jeremiah Lee I'll be happy to send you his contact info in a private message. We actually already talked about your project and he said he can show you a similar project that he worked with another client on over on Phillips Street in SLO.

Chris Mason · Answer

Renovation loan. FNMA HomeStyle or FHA 203k are the two most common, one of them has a weird preference for attached v detached that I can't remember at present. 30YF available.

Ben Tilbury · Answer

continued from above:

<bad joke I know! But construction can be done on your time schedule  if you just want to pull from accounts as it progresses and then once completed refinance and pull some equity back out to replenish your accounts. Another option would be finding the right hard money lender with terms that make sense...I might know a guy. But that's all for you to decide what option suits your needs and comfort level. Do you have a general contractor already? I also know a guy...feel free to message me and I wish you the best on your build! Make sure before you do anything you talk to the county/city building department and make sure they will allow a secondary dwelling on your property if you haven't already :) Also it does make a difference if the secondary dwelling will be attached or detached to the main house for loan possibilities and permits. if you need a lender...let me know and I'll put you in contact with my guy whom I quoted above.

Ben Tilbury · Answer

The beautiful thing about real estate is there are always multiple options or solutions to an objective or issue. In this case your objective being a secondary dwelling unit and the issue being funding it. Now I'll quote my lender on this when I just asked him for his expertise regarding your post, he says a "New construction loan where the lender would "roll in" the existing loan, and then make draw payments during the course of the construction to the builder. This is not an easy loan, but he will certainly appreciate the cash flow when they are done." Now that is definitely possibly the most common and some would say best option. But there are other options, another shortly put would be combining a HELOC, your 401k, investment account, and funding the rest as needed with your salaried income. This may leave you stressed and you without "bigger pockets" <bad joke I know! But really construction can be done either slowly if you just want to pull from accounts as it progresses and then once complete refinance and pull some equity back out to replenish your accounts. Another option would be finding the right hard money lender...I might know a guy. But that's all for you to decide what option suits your needs and comfort level. Do you have a general contractor already? I also know a guy...feel free to message me and I wish you the best! Make sure before you do anything you talk to the county/city building department and make sure they will allow a secondary dwelling on your property if you haven't already :) Also it does make a difference if the secondary dwelling will be attached or detached to the main house for loan possibilities and permits. if you need a lender...let me know and I'll put you in contact with my guy whom I quoted above.

Mark Sherwood · Answer

@Jeremiah Lee hi! I’m a new investor (still in the learning stage) and I’m thinking of doing something like this on my property as well!

How did it go for you if you don’t mind me asking? Did you end up moving forward with it?

Thanks!

Jeremiah Lee · Answer

Hey Ben,

Greatly appreciate the info and response,  It's also nice to hear from a Central Coast local. Yes, I've checked in with SLO County to find out all their guidelines and approximate costs for permits.  From what i've learned so far, it should be very do-able.  I have also spoken with a couple contractors to get some cost estimates and building ideas.  Realistically, I think it would be very smart of me to save up quite a bit more money before jumping into this project.   However, I'd like to figure this thing out now so I can better determine what the next best investment opportunity will be for me.  Over the last five years, i've really focused on paying off student loans, my truck and figuring out how to live off less.  I would be interested in talking to your lender if possible. Thanks!

How to finance Secondary Dwelling?

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