Financing Options ADU

[Aram Ozen]

Hello, my name is Aramand I'm attempting to pursue my Real Estate journey by investing in my wife and my own property through building a ADU to rent from an existing garage. I've met with three contractors who have all quoted me about 75k for the conversion not including bathroom/kitchen items. My wife and I have 45k in cash at this time but I've been frustrated trying to find other financing options that will give us some breathing room with cash flow sooner rather than later.

. I've looked at HELOC loans and lines of credits but the two banks I talked to could not work with me. My house is valued at 575k-580k and I owe close to 436.5K. I was looking for about 40k at least assuming the project will go above the budget due to Covid delays but those institutions couldn't help me. I'm wondering, is it worth it, to continue to look for those type of financing deals or just settle for the personal loans which could end up costing me so much more in interest in the long run but seemingly easier to obtain the finances.

[Jonathan Taylor]

@Aram Ozen I converted an ADU in LA and this is an issue on the smaller loan amounts.

Here is my two cents. First, you do not have enough equity in your Primary for a HELOC. lines of credit (depending on the bank) go 70-75 CLTV and you are right at 75 LTV.

Second, the loan amount is so small, a lot of lenders will pass, especially in SoCal.

Third, ADUs usually do not add the value you would think. These builds are cash in cash out play and rarely increase the property value enough to justify a construction loan.

Id explore options with zero APR credit cards if private financing is unattainable. I know credit card debt is scary, but well managed and calculated, its strong tool. I paid for labor in the cash I had and fixtures/supplies on credit cards where I knew exactly when the payoffs were and when they came close, opened another card and did a balance transfer. Then the cash flow on the ADU paid down the remaining balance.