All Forum Posts by: Whitney Hill

@Eddie Aviles I've used Patch on 6 fix and flip loans for single family properties in NJ... all were extensive renovations where we added sqft. Their origination department is very strong (highly responsive & knowledgeable) and rates competitive. However their servicing is mediocre... during COVID I had to call daily to get any updates, and even prior to that it would be days before hearing back from them. On the whole we stuck with them because rates were competitive and we could get an answer very quickly when funding new properties.

• If you don’t have equity in your house, but your current loan value is less than $550K ⇒ a Homestyle Renovation Loan could cover the construction of the ADU by using the future value of the property with the ADU, up to a total loan value on the home of $701K (e.g. if you already have a $500K mortgage on the house, there is potential to get a $200K renovation loan for the ADU construction)
• If you don’t have equity in your house but you have a FICO score of 720+ ⇒ you could consider a 2nd Position Construction Loan that will cover the building costs (and is not limited on loan value like the Homestyle option). Once the ADU is completed, you can refinance into a single loan.

Another cross-reference on build cost, since we're seeing numbers all over the map in this thread... Maxable is a well-known aggregator of information in the ADU space and puts costs at $250/sqft for construction + $50/sqft for soft costs.  For reference, our margins as a GC are 15-20%... so if you manage it all yourself (and can keep things running as quickly as a good GC will), you could get closer to $200/sqft all-in.

Sounds like a good candidate for a renovation loan, 203K or Homestyle, depending on what you're building for the ADU.

Renovation loans allow you to finance a renovation project (including ADUs) into the mortgage. There are two types of renovation loans that can be used for ADUs… FHA 203K allows for attached ADUs or conversions. Fannie Mae Homestyle allows for construction of detached ADUs. Both loans have a limit of $701,500 and may be based on the "future value" of the property after adding the ADU, which will be based on appraisals (not rental income). Renovation loans typically offer up to 95% financing of a primary residence or 85% of an investment property.

Meredith is a good place to learn more about the process as Paul mentioned!

@Brandon Carlson Yes, the price / sqft is considerably higher for ADUs vs a home, since you're still incurring many of the same big ticket items like a kitchen and bath.... yet that expense is spread over a smaller area, driving up the cost / sqft vs a larger home. Same goes for permits, plans etc as it applies to the "all-in" cost / sqft.

Are you going to be hiring a contractor to do the work? If so, I would reach out to them first. They will be able to advise on the plan requirements, potentially giving you something off the shelf from a previous project or referring you to an affordable draftsman. The contractor will make sure you don't design something beyond your budget. They will also be able to advise on getting the existing unit permitted (and helping with anything that will be required to get it to code). 

Hi @Brandon Carlson, just chiming in on the total cost. For a 750 sqft 2BR/2BA, all-in costs are going to be more like $210K if you go with a contractor. If you sub it out yourself, would imagine saving ~$40K. Either way, I don't think that budget is realistic unfortunately.  Here's a breakdown of costs:

1) Design & Engineering: $6,000-10,000. Full set of construction drawings along with a site plan (even if you use a standard plan, it has to be situated & adapted to your property specifics). Design also includes Title 24 (required by CA), structural engineering, building code review with the city, permit processing, and a final estimate with a fixed guaranteed max cost for construction.

2) Permits & Fees: $6,000-8,000. A good rule of thumb is $10-12/sqft in fees. While ADUs are now exempt from many fees, there are still several to consider. There are no impact fees for ADUs under 750 sqft. School fees are also still due, as well as sewer connection fees. 

• Sewer: Connection fees are usually $2-4K, with recurring fees thereafter of about $1K/year. Note that a new septic system is likely required for an ADU if your property is on septic.
  
• School: Usually $4/sqft, so $2-5K

3) Site Work: $10,000. This number will of course be highly dependent on your specific property conditions. For a level lot, expect the sitework and foundation to cost $10K. If you need to start moving dirt and putting in retaining walls, sitework costs can quickly escalate.

4) Vertical Building Construction: $187,500. With a 750 sqft unit, cost is about $250/sqft.

5) Solar: $7,500. All standalone ADUs are required to have solar in place, with basic systems costing $7,500. Silver lining here is that you'll save on utility costs :)

6) Other Costs: TBD. While typically not required, you may have additional costs come up if you require additional structural engineering, civil engineering, or soils engineering.

Another important consideration here is build cost. Most pre-designed plans put out by cities (and probably those on ADU Building Plans) have not been evaluated by a builder or value-engineered. For instance, most aren't designed with truss roof systems (much more efficient to build). The few thousand you may save could quickly evaporate.

Also, the vast majority of standard plans require at least some amendments… e.g. a door or window needs to be moved due to site layout or constraints. So you’ll likely still need to pay for plans to be drawn up.

In case helpful, some comments on the permitting process/cost.... it's similar to bringing an illegal addition into compliance. It would require drawing a plan for the existing structure (typically $2000-3000), sending it to plan check at the city (planning, building, and fire), potentially conducting an exploratory phase where walls are opened up for inspection with the city (typically no more than $1000-2000 for opening walls and repairing them), addressing anything in the structure that is not within compliance (cost will of course depend on what’s going on with your structure), and paying for any permits (typically $1000).

In case helpful, some comments on the permitting process/cost.... it's similar to bringing an illegal addition into compliance. It would require drawing a plan for the existing structure (typically $2000-3000), sending it to plan check at the city (planning, building, and fire), potentially conducting an exploratory phase where walls are opened up for inspection with the city (typically no more than $1000-2000 for opening walls and repairing them), addressing anything in the structure that is not within compliance (cost will of course depend on what’s going on with your structure), and paying for any permits (typically $1000).