What is Accessory Dwelling Unit (ADU)?
Accessory Dwelling Units (ADUs) are self-contained living spaces within existing properties or on the same lot as the primary residence. Also known as granny flats or in-law units, ADUs offer flexible housing options without the need for separate properties. They come in various forms, such as converted basements, garage apartments, or standalone cottages, and serve as solutions to housing shortages, generating rental income, and promoting sustainable urban development. While beneficial, challenges include zoning restrictions, costs, infrastructure impact, and property management responsibilities. However, ADUs remain a valuable tool for enhancing housing diversity and community resilience.
Advise on real estate financing
I would start seeing what the total principle, interest, tax, insurance, utilities would be. Then add in current obligation, then talk to Umpqua bank and see if you are on path to qualify. Then see if that makes sense for at least the next few years.
Can consider a no need permit or light structure? At least for home office or privacy.
Or fix up in general, understand your true ownership. See how you enjoy things or rent out your 1/2 at some point. Put your big investment in something owned by you.
Different things going on:
- Ownership breakdown (what happens if a co-owner sells, wants to leave) (is ADU co-owned by default?) <- working on an agreement (working on specific language)
- Need to understand who is paying what interest / property taxes and deducting it
- You may have issue trying to have the ADU fully owned by you
Rapid thoughts:
- At time of adding you to title, you received 50% of home equity (could be calculated in different ways)
- Then split all expense on everything 50 / 50
- As ADU is built that could be co-owned 50 / 50 and then reduce the note payable over time
Tax thoughts:
- It is who pays interest and taxes ongoing takes the deduction
- Ref-fi is deductible, cashed out about 20K, then any additional indebtedness up to $80,000 would create deductible mortgage interest
- If ADU is build = about 1.25% generally of market. Maybe 1K a mo? If 750K loan x 6.5% = about $5K a mo without principle. + existing mtg and tax (or rent) obligation $1,200. So maybe 7K + + insurance a mo but need to see / Could likely qualify still on $250K + income + Utilities.
ADU Process:
- Permits to be approved, slow to release
- Seeking financing
- Total project cost ADU only $750,000 (lots must happen) SQ FT adu 2 story 1,400 SQ FT ($1 Mil if you wrap in improvements everywhere)
- About $20K to $30K in design, permits, etc… (paid cash)
- Out of pocket funds to use about $40K / additional $40K in retirement
- Any local loan programs or city incentives? (Research starting)
- Ask local planning department for tips, local bank, and or credit unions
- Design build firm has contractor lined up (ask them for financing)
- 30 year fix at 6.5% (per search)
