California ADU below cost appraisal issue

[Angelique Herman]

Hi BP folks

I’m wondering if any California investors have experienced this same issue…

Backstory, I am in the mid stages of a long term live in BRRR. I have a SFH that's has the garage converted to a Junior ADU fully permitted. It's separate from the main house and currently rents for 1445/month. I'm in Santa Maria, CA in Northern Santa Barbara County.

We just got an appraisal done and got a very low value assigned to the JADU portion. The issue is that this appraiser only has 1 other property that has a converted garage studio and derived a value of 50k for it, then applied this value to the other SFH comps in our neighborhood. The lack of a garage penciled out to -10k so the net increase for the studio only netted +40k on this appraisal worksheet. This studio costs us 84k to build, so having it appraise at less than half of the cost is obviously a problem. This particular refi could still work out for us but the larger concern is for the future moving forward.

If the future appraiser values the as-yet-to-be-built future ADUs at roughly half of what it costs to build, I don't think that's something we can continue to do. Are there any options for instances where there aren't good comparables in the area? The issue seems that ADUs have not been built a lot in the area yet and that properties with ADUs have not been sold much. I would think that a buyer would value a permitted studio ADU that costs 84k to build higher than 50k already built, especially considering it grosses 1445 per month in rent. Is there a way to value it differently as if marketed to an investor as a multi family? Or does anyone know of lenders that are more friendly or like to work with folks trying to do a cash out refi on a property with an ADU that doesn't really have close comps? Thanks for your help.