Trying to buy in an expensive market. Should we put down a 20% deposit for our first home, or should we put down a smaller deposit and use the leftover cash to pay for an ADU that will generate supplemental income?

Long version:

My girlfriend and I are preparing to buy our first home in what is an unfortunately expensive market (Seattle). We have a decent amount of cash from savings and family gifts to put towards a deposit; we can afford to put down a 20% deposit if the home is at the lower end of what is available. However, inventory here at that "lower" price point is extremely limited and there are a lot more options if we increase our budget another 20-25%, but this means we would need to find another stream of income to make our mortgage comparable to our current budget. The rental income from even one ADU like a basement studio apartment would easily bridge that gap, BUT to afford a property with that kind of space we'll need to pay more for the property as well as (possibly) pay for the ADU conversion/construction. With that lengthy preamble, here are my questions:

- Is it better to put down 20% on a lesser property; or to find a better investment, put down a smaller % deposit, and use the leftover cash to finance the rehab/construction of an ADU?

- Are there refinancing strategies (a-la-BRRRR and forced appreciation) I could leverage to help finance the addition of an ADU, assuming we do add one?

Thanks in advance for looking. If I've been unclear, I'm happy to try to answer any questions that clarify my situation.

Cheers!

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Better to put down 20%, or use some of that money for ADU?

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