Investing in my own home with an ADU.

[Jillian B.]

I have a SFH in Denver, CO. It is zoned for an ADU (Accessory Dwelling Unit). I can build an 864 sqft or 3 car garage and an ADU 648 sqft (approximately 75% of garage space) on top floor and generate income. Price tag $275K-$325K.

The catch? I took the equity out of my home to buy a duplex in Oklahoma City, which fell through, and I don't have enough to pay for the ADU. I have about 2/3 of the cost. So what now? I have been deliberating on this and I just don't know if I should:

a) Hold on to the cash/equity and make the payments until...

b) Buy a property in Oklahoma City, strong market but easier/less expensive to get into and try to generate enough return to actualize the ADU project.

c) Take out a loan to cover the cost of the ADU, roll the existing loan into it and build the damn ADU! (By the way I am quitting my job in the very near future and doing some freelance work.)

So you see I have lots of options, with a few caveats, but as a new investor I just feel overwhelmed. Any ideas out there?

[Davido Davido]

@Justin Tahilramani is correct. Your costs are too high -over $450 per square foot (based on a 650' ADU) with no expenses for land? Get the costs down to $150,000. You'll have enough available, you'll get it done and you'll turn a profit.

Use an already completed and engineered design that is close to what you want and can be purchased for a few hundred $. Set up a cheap website and get all your drawings on the website, then use Craigslist adds posted in out of state major cities with depressed economies. Your add should seek a builder, with tools, who can build your chosen design, within 6 months. Provide a link to your website so the design can be reviewed from anywhere, offer $2000 per week in cash with $1500 paid weekly and the rest paid in lump sum only upon completion. Also offer strong incentives for early completion (incentive like paying six months labor even if your builder completes it in 5 months). You'll have plenty of people interested, but choose wisely, many will be more interested in being paid, than in completing the ADU.

You could sweeten the deal by offering to let the out of state builder stay in a spare a room in your home. Also use less expensive materials if you are still over budget. Choose fixtures, finishes and appliances that can be upgraded later when the finances are stable. Under this arrangement you get an ADU very close to what you want, limit your labor costs to $50,000 and your materials to $100,000. You already have enough to get it built. You do have to manage the project and the builder, and you just do the permitting yourself.