Many ADU projects are starting to get wrapped up, hit the market, or current owners of projects are looking for take-out financing. The good news is that there are already comps, closed refinances, and closed purchases to help pave the way for the new deals. The BAD news is that NOT all lenders want these deals, understand these deals, and can close these deals. Fannie/Freddie/FHA/VA have some appetite for these deals, but they are limited as well, it does NOT make much sense but hopefully over time with more close comps the lending environment will get better.
Let’s look at 4 scenarios below, I have financed ALL these scenarios below (purchase and refinance) and have lots of experience with these types of transactions.
Scenario # 1, SFR + ADU = EASY to finance, just make sure you have comps that support value with SFR + ADU’s. You can use income from ADU to qualify for a loan in most scenarios.
Scenario # 2, 1 to 3 unit + ADU = EASY to finance, just make sure you have comps, some lenders will NOT allow you to use income to qualify from an ADU unit.
Scenario # 3, 1 to 2 unit + ADU +JR ADU = CHALLENGING to finance, almost impossible if you don’t know where to go. Comps are very hard to find, and lenders don’t like the Jr ADU for some reason. Using income to qualify is very limited to certain lenders.
Scenario # 4, 2 to 4 units + ADUs that will make it a commercial property with 5 + units = DOABLE to finance, this will have to be done as a commercial loan. Easier to come up with value as they use more of a price per door and since commercial financing must qualify at the property level, meaning the loan amount is based on cash flow.
If you have any scenarios or further questions, please set up a time to talk with me.
