Financing ADU rental for my primary residence

[Mercedes Smith]

Hi Everyone! I have been lurking for a while and this is my first post. I have a steady full-time job that I love that pays well and I'm just looking to do REI on the side. I sold/flipped my last primary residence for a pretty penny and am now fortunate to be living in my dream house (I put 20% down and moved in just a few months ago).

I have approx 100-125K cash left that I would like to invest in RE. I have been reading a lot about BRRRR and I don't see many opportunities in my area of Salt Lake City that even barely meet the 1% rule. I feel if I want to BRRRR I should sit on the money and wait for the prices to go down in a few years. Overly conservative?

OR . . . .

Should I build a legal ADU (accessory dwelling unit) over my detached two-car garage in my backyard? I have had several architects and contractors out who have given me prices anywhere from 90-120K to build a 650sq ft apartment over my garage. (City will not permit an ADU to be larger than 650 sq ft.)

Cost to build: 100K  (estimates are 90 -120K, including architect and city fees, everything)

Financing Options -pay 100% cash or finance all or part (HELOC? other Loan?)

Income: at least $1000 a month, maybe $1200 if I make it a 2 bedroom

CapX: very little since it'll be brand new, I'll self manage, and the location is highly desirable so low vacancy

Refinance option: It's highly possible that my home will appraise for >125% of what I paid for it after the ADU is built, (maybe even 143%, but that's pushing it probably -and there are so few comps in the neighborhood as the city just started allowing ADUs a few months ago) I could refi and pull the cash out, but that might not be for another year (construction time) and I'm worried that the interest rates will be too high then to make total sense. (Since it's my primary residence I'm using the 125% instead of 143%, I hope that is correct.) Again, I am a newbie, help!

Many people wouldn't want renters in their backyard, but I live in a high density housing area with an unusually large/long backyard. The houses on either side of me are already closer than the garage unit would be, so to me, having a unit in the back is not much of an intrusion.

I am new to this, so fill me in if I am absolutely wrong in feeling there there no/very few properties in SLC right now that would rent for over $1000 and cost only $100K.... 

How would you choose to finance the unit if it were you? 

Would you save the money and wait for a lower priced market? 

Totally different better ideas?

Thanks in advance!