ADU experience in Orange County, CA or LA County, CA

[Vickie Y.]

Hello everyone!

I have been an out-of-state buy and hold investor for a couple years, but am looking to purchase my personal residence closer to home. The strategy is to manufacture a "house hack" by buying a property on a large (8000+) lot with a detached garage, which I can covert to an ADU. I would live in the ADU while renting out the front house.

Location: 

I'm planning to identify a property that would "work" with the ADU restrictions. Looking in cities that have more "lenient" ADU laws. So far, I've looked at Whittier, Buena Park, Pico Rivera, Lakewood, and Bellflower.

Financing: 

I would want to use a 203k loan to cover the costs of construction of the ADU along with the property itself. Downpayment of 5-10%.

Construction: 

This is where I'm a little stuck. I know about planning and permits but I'm a little lost as to where to start with that process. 

Here are my questions: 

1) Based off the cities identified, any red flags? 

2) Any catches with the 203k loan? Will this make my offer on a house "less attractive"? Are contractors paid then, by the bank? How does disbursement work? 

3) How should I approach the construction / permits? Should I go with a company that specializes in ADUs, or will a normal GC be able to handle it? What would be the pros and cons? Should the GC go with me to look at the property prior to my purchase? I'm hearing a price of about 100-150k quoted for a 1000 sqft 2 bedroom ADU - any ideas if this sounds reasonable?

4) (probably a dumb question) How exactly does an ADU differ from just "building a second house on your lot"? Or are there no differences?

I would love to hear about people's experience with this! Thanks in advance. Please feel free to tell me if I have left out any important details and I will be sure to fill them in.