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ADU Financing

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ADU financing is an important topic if you are looking to capitalize on the benefits of an accessory dwelling unit. One of the biggest advantages of owning an ADU is the rental income that it provides. Let’s take an example of our Hillcrest Model, which transforms an existing garage into a beautiful suite apartment. Of course, the cost of the garage conversion and the rental income will vary depending on many factors, but let’s use these simple numbers:

Hillcrest garage conversion cost: $90,000

Monthly Rental Income: $1,500

Yearly Rental Income: $18,000

If we take the ADU cost of $90,000 and divide by the yearly income of $18,000, we can see that the ADU will pay for itself in 5 years! Once it’s paid for in full, your future income is phenomenal. At $18,000 of rental income per year, this results in $180,000 over 10 years and $360,000 in 20 years! You’ve just created a cash cow in your garage!

ADUs can be financed from the equity in your home!

A huge upside to building an ADU on your property is that you can use an equity line of credit to finance it. Superior ADUs has built relationships with specific lenders who are able to help you go through the process. The most exciting part of this is that indirectly your tenants pay for the cost of the ADU!

Let’s take the example of a homeowner whose home is worth $600,000 with an outstanding mortgage on it of $200,000. If the homeowner has good credit, he or she can obtain a $90,000 equity line for 4.43% APR on a 30-year loan (10-year draw term & 20-year payback), resulting in a monthly payment of $452. Let’s look at the numbers using the example above of the Hillcrest model’s garage conversion:x

Equity Loan

$90,000

Monthly Rent

$1,500

Monthly Loan Payment

$452

Monthly Rental Income

$1048

Yearly Rental Income

$12,576

Rental Income (over 20 years)

$251,520
Using this example, we can see that not only does the tenant pay back the $90,000 cost of the ADU, but the homeowner also makes $251,520 of income during that 20-year payback period!

ADUs increase the value of your home!

Adding an Accessory Dwelling Unit to your home is the easiest way to add square footage and bring up the overall value of your property. Let’s take the same example that we’ve been using of a homeowner who owns a property that’s worth $600,000 and contains 1700 square feet. By converting the 400 square foot garage into a beautiful suite for $90,000, we’ve just added 400 square feet to the property, bringing the total to 2100 square feet! The property now has the opportunity to generate income, which also adds value. The amount of value that will be added to your home varies depending on location and other factors. For a more detailed analysis of the added home value, please reach out to the realtor on our team, Andrew Moore.

ADUs result in tax benefits, saving even more money!

Homeowners who rent out part of their home or who own rentals, have many tax write-offs, such as repairs, utilities, management fees, etc. They are even able to write off the interest on their mortgages or home equity loans. The IRS also lets you claim depreciation, which is a write-off simulating the gradual wearing down of a property. Of course, all homeowners should check with their accountants about the details of their unique situations, but tax write-offs are yet another financial benefit of owning an Accessory Dwelling Unit!

Call Us Today at 949-216-0686 to go over your personal financial benefits based on your property address!

*All numbers used in the previous examples are based on estimates only. For an actual cost and analysis, please reach out to our team at Superior ADUs.

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