All Forum Posts by: Jennifer Smith

I am on my way to visit my father, who has some cognitive issues. He is in the process of hiring a contractor to fix up his house for sale, and I want to make sure that my dad isn’t being taken advantage of. What questions should I ask, to make sure this guy is legit? What red flags should I be looking for? Thank you in advance for your help.

Hello!

I am trying to decide between two strategies for funding an 80k ADU to be built in my backyard. What would you do?

I currently owe 265k on my 301k mortgage, in a house that is worth probably 350k right now. The ADU will probably add only 25-30k to my house at appraisal, based on comparable situations, but it's worth it to me for the rental income.

My plan is to complete this project, save money, and move and repeat the process in about a year - the ADU will turn this property into a rental that will cash flow approx $400.

Which, if any, of these funding options sounds smartest to you?

Option A: Cash out refi for approx 30k, then a HELOC for approx 55k.

Pluses: can do interest-only payments during construction, 10-year fixed rate on the HELOC at 5.25%

Minuses: Worry about refinancing/paying off the HELOC later, when I no longer live here - less favorable terms? Having to do several refis/appraisals? Waiting period?

Option B: HELOC for the full cost of the ADU, then refi after construction into a 30-year fixed.

Pluses: No variable rate worry

Minuses: There may be a shortfall between what I have taken out for the HELOC and what I can get for the 30-year fixed. I may have to make up that discrepancy before I can refinance. I will be able to put $1600/month into it, but between that and the one-year residency requirement on a 30-year fixed, I may be in this property for a WHILE.

Any thoughts? What would you choose? Would you even pursue this project right now?

I’m at a decision point with my current home, and I’m trying to figure out what the best decision will be to set myself up for long-term success.

I would love to hear any ideas the community might have!

The situation: I have 255k left on my 301k home, which is probably worth 360k now.

I rent the basement out for 800/month, and my house payment after that is about 1080/month.

I have two choices.

Choice A: Get a HELOC and put an ADU in the backyard for 80k, then refinance on a 30-year fixed. I can then rent out the ADU and the basement while I live here for another few years, building equity for a down payment to move. With the ADU, when I move and rent the upstairs, the property will cash flow about 500/month. The drawback: I really don't like my neighborhood, and would like very much to move.

Choice B: Sell the house and move to another neighborhood that I like more, with a basement that I can rent out. The long-term plan will be similar to my current home - to put an ADU out back as soon as I can, and rent the basement.

I know that you can’t say without knowing the exact numbers which is a better deal. My question, though, is this: To you, is the financial gain from staying and creating a cash-flowing situation out of my property worth staying in a neighborhood I don’t really like for 3ish more years? Would you sell and move, or stay and build?

@Chris Shepard Thanks! Do you know if there’s any printed info available about what requires permitting and what doesn’t? For example, adding a door to the basement entryway? I want to add a few things to the basement to make it easier to rent out.

@Jack Orthman Thanks - I definitely want to do everything legally and above board, for sure.

I have a three-bedroom, two-bath house. One bed and one bath are accessible through a separate entrance. I am going to be building an ADU in my backyard soon.

It is my understanding that it’s likely to eventually be legal to have two ADUs on the same property in Portland (a basement and a detached, for example) but that it’s not legal now.

Is it possible for me to legally rent my basement unit separately from the upstairs of the house, without running afoul of anything legally? I plan on refinancing the home as a rental, with signed leases for the upstairs, the downstairs, and the ADU, as long as that's legal.

Or would I need to legally turn the basement into an ADU eventually to have that be legal?

Given the following factors, what would be the best way to set myself up for long-term financial stability? Warning: possible dumb questions ahead, I’m new.

* I have a stable job making a little over $100k a year, and excellent credit

* I have a house in Portland, OR for which I paid $301k, I now have approximately $100k in equity. The house has an apartment in the basement that I rent for $800/month. It is not an ADU, the tenant of the apartment is legally my roommate, but they have their own entrance, bathroom and kitchenette.

* I do not want to live in this house long-term, I’d rather move to a nicer neighborhood.

* I am willing to do the work of being a landlord, keeping up the property, etc.

Should I:

a) Sell the house, buy a new house that also has an apartment in the basement, to rent out for help with the mortgage;

b) Stay in the house for a few more years, take out a loan and build an ADU on the property, rent out the basement apartment and the ADU; allowing me to save money on housing costs (my housing costs will go from 1080/month to $50/month with an ADU out back)

c) take out a HELOC and use that for a down payment on a new place (single or multi-family, or house with rentable basement unit like I have now). Will they even let me do that, take out a mortgage on a new place and also have a loan on my current one?

- if I do rent out my old place, should I rent it out as one unit at approx $1880 market (which is exactly my mortgage payment) or can I rent it separately, for $1500 and $800? How does one do that legally?

d) Something else that I haven’t thought of yet?

Assume no family money, not a ton of savings, nobody aside from banks who is willing to loan me money.

Obviously what I'd like to do is buy the new place, put the ADU on my old place and rent it out, but nobody would give me a mortgage/loan combo for that much.

Thank you in advance for your wise counsel!