Looking for Financing for an ADU

[Isaiah Jernigan]

Okay so here's my situation:

I bought my primary house in October of 2021. I'm eager to get into my next unit and I thought a great way to get into another one is using Rob Abasolo’s (Robuilt) strategy and build a tiny house in my backyard. It mitigates the risk by building on land I already own, and the low overhead of building a tiny house is great, low startup cost. The utilities hook up to the primary house so no paying for street lines. My brother lives with me and is going to help me build the house, we are going to outsource the plumbing and electrical. I owe 176k on the house, bought it for 200k and it's worth about 220k right now.

This is the loan I need:

This loan is for a modern tiny house, which will be built on my primary residence. The financial aid will go directly towards the construction (e.g. site work, foundation, rough-in framing, finishing), the furnishing (e.g. appliances, furniture, basic fixtures/installments) and management of this project. The project will take approximately four months to complete, beginning in January of 2023 and ending in April of 2023. Upon completion of the construction and inspection, we expect a cash flow of $1448.00 per month after expenses. This estimate is based on earnings from similar rental properties marketed on Airbnb and VRBO reported on [Airdna, Airbnb Comps.], calculating 75% occupancy per month and a daily rate of $100.

My Problem:

1.I don't have quite enough equity to do a HELOC, 80% LTV would break even on what I owe.

      2.I don't have enough credit history to apply for such a large personal loan

1. 3.Small business lenders won't lend on it because even though it is a business, it is not established and it's more of a project than a traditional business
2. 4.Hard Money Lenders won't lend on it because its a primary residence, also the loan is to small for them

Looking into:

Im looking into using personal 0% credit cards to build it, it cash flows so well I can pay it back before interest kicks in at 18 months. Also looking into private investors, I don't have anyone with that kind of capital but if anyone knows someone who would be interested in private lending I would love to meet them.

Also once construction is complete I could get a HELOC or refinance and pay back the cost of the tiny house

[Michael Baum]

Hey @Isaiah Jernigan, you have made some statements that need some clarification.

You say "that is cashflows so well I can pay it back..." How do you know it will cash flow that well?

How much are you expecting it to cost? Are we talking about a foundation with a small stick built house? Are we talking about a tiny house on a trailer?

The former is considered a real asset, but you have to be zoned R2 (usually) in order to build it or have some kind of city program that allows ADU's. Seattle has something like that if it meets size requirements etc, but it needs to be rented long term.

If it is the second, then you are talking about a RV essentially. It is not considered real property so getting financing on it is more difficult.

Have you checked with some of the tiny home people (trailer type) to see if they offer in house financing on their products or have a lender ready to go?