DADU Construction Financing

[Zachary Schnautz]

Hey everybody,

I've been looking into the possibility of building a DADU on my parent's property. I've begun researching the topic to find out if it's possible/feasible and would like to find out what financing options I may have. Due to local zoning and regulations, the DADU would be restricted to a maximum size of 1000sqft finished (not including the garage/shop area I'd like to build attached to said DADU). I've done some research on construction loans but haven't found much on how they would apply to ADUs. A low-down construction loan would be ideal, such as the FHA one close construction loan, but from my understanding that particular loan is limited to primary residences (which to be fair, I would likely occupy the unit for some time before turning into a rental in the future). The unit will likely need its own septic and well water system as the property is technically rural, but I'm trying to find out if it can at least connect to city water. I'm sure this will add significant cost either way.

Long term I'd like for my parents to be able to keep the DADU as a rental and supplement their income as the rent would likely far exceed the loan payment since they are located in a HCOL area (Redmond, WA). I'd also like to build them a house for themselves in place of the current manufactured home on their land as it's falling apart and I figured the cash flow from the DADU rental would be able to pay for a construction loan for their primary residences as well. Short term I'd like to occupy the unit myself, so I was hoping that might allow for more favorable loan conditions similar to traditional owner-occupant loans; the only caveat would be the current property is financed in my parent's name and the loan for the DADU would likely be in my name. They do have significant equity in the property but have borrowed from it before, although I'm not sure to what extent so I'm not sure they would be comfortable pulling out a HELOC to fund the construction.

One last unique thing to consider is that I'd like to do a decent amount of the construction myself, as before I became a realtor I was in the construction world and was involved in all aspects of construction. I think doing a lot fo the work myself would be both gratifying and save a decent chunk of change in terms of labor cost. I mention this since I've noticed some loans require a designated general contractor. I wouldn't be opposed to getting my general contractors license for the sole purpose of electing myself as general contractor but from what I've read some loans do not permit this and would require a 3rd party contractor.  

Thanks for taking the time to read, let me know what you think!