How do I finance a tear down and build of multiple units?

[Shira Laux]

Hey folks, i acquired my uncle's home through probate. A little about the property:

Located in Bay Area, CA

Lot approximately 5300 sq ft

Existing dwelling is 628 sq ft 1b/1b house and a detached 2 car garage in the back corner of the lot. Bathroom and kitchen are gutted so I can't really have an appraiser walk through and get an accurate valuation. Built in 1952, outdated and too small.

Completed cash out refinance January 2021, took out max  of 250k, sitting in a 1% APY acct and owe 417,000 on the note with a monthly mortgage of $2162.

I initially wanted to explore ADU, multi-family options with multiple units yielding more profit. When I met with my builder and explained I had 250k, he laughed and said we're looking more in the addition spectrum, turning the home into a 2b/2b. and that's it. I spoke with my lending company and they said I qualified for a HELOC of an additional 100-150k. I haven't done that yet, just sitting on that information I decided to lean into a larger structure for a tear down and build of a 3b/3b 2 story.

After we got the drawings back from engineering my drafter is estimating loosely a cost of $675,000 to build. I don't particularly WANT to afford that, or even know how I could. I would be much more comfortable hitting the drawing board for a duplex or fourplex on the lot. My spouse is much more supportive of helping me finance the multi family build, we just have no idea where to start with financing. We both separately own 1 other rental home so only 1 loan currently under his name and 2 total for me including this property. We have no other debt. We live with my dad and pay cheap rent to him in order to save for future properties. 

If we can get the financing options figured out, we both are more than comfortable assuming the loan for the construction on a multi unit build. I would estimate we would need somewhere between 700k-1 million to do this.

I have currently paid my drafter about 6k to design and engineer the 3b/3b. This is less than half of the cost of other companies I shopped around with. I would have no problem going through the process again and starting from scratch to design and build a multiple unit concept, and engineer it, I just need to know that I will have the finances to back up the build. All suggestions appreciated.

Thanks for reading,

Shira