Borrow money to build unit or save money to purchase new property

[Wei Cho]

Hi everyone I need advice. 

For those familiar w/ California's ADU & jr ADU laws:We live in a suburban neighborhood in SoCal, about 25 minutes east of downtown LA. We just purchased in August 2020 a 3/1 with a detached garage and alley access. Our original plan was to add a master bath to the 3/1, 400 sf jr ADU (1/1) attached to the main house & a detached 850 sf ADU (2/2, we will be living in this new one) that will be attached to the garage.

We're debating if we should build the jr. ADU bc it will be attached to the main house (essentially a duplex) and not sure if families (our most likely demographic to rent the 3/2) will appreciate being attached to a 1/1 with no backyard (but plenty of front yard). This Jr. ADU we will need to borrow $100k in hard money or second mortgage to an investment property we own. We would need the $100k because the jr. ADU will be attached to the main house, so the main house needs upgrades - like new roof, new paint, upgrade plumbing lines, etc.

Would you recommend borrowing the money to build the jr ADU or NOT build it and only build the ADU (where we are going to move into) and save our money to buy our next property August 2021? We're estimating construction to be done in April 2021. Our current mortgage is $3350 and the 3/1 (existing) could rent for $2700 (we added an central A/C). Once we move out we could rent the ADU and be cash flow positive.

Some more info: The rent that we can get for the 1/1 would probably be $1600. The terms for the hard money/second mortgage is probably 10% interest w/ a balloon payment of 1 year (I think, based on the direct lender who is going to put me in touch w/ his investors). 

Thank you!