May 12, 2022

I hope you are having a great week, and I hope that life is treating you well!

I am building my first ADU on one of my properties in the valley, and I want to make sure you understand how to value a property with an ADU. I am a go big or go home guy, so I took my garage and added on, and we have an 1100 square foot ADU that we will rent for about $2600.00 in San Fernando. The front house is original and about the same size, and it is worth about $700,000.00 the way it sits. So the addition of a second unit has to make it worth 1.5, right? NOPE!

Maybe $725-750K at best! I was not looking at my ADU in the way of property value but as income. If I went and bought a property with the money I spent on the ADU, I would likely get rent of $1250.00 a month, and where would I find that? So here are a few things that you need to know when you are looking at a property with an ADU:
Only one ADU is permitted on the parcel of the primary one-unit dwelling if you want to get financing from Fannie or Freddie!
ADUs are not permitted with a two- to four-unit dwelling.
We can’t use the rental income from the second unit to help a borrower qualify for a loan.
Getting comps for properties with ADU’s can be challenging! So appraisals are very difficult! The appraiser must determine compliance with this definition as part of the analysis in the Highest and Best Use section of the appraisal.
The appraisal thing is the hardest for people to comprehend.

If my neighbor did the same thing and sold the property for 1.2 (better be all cash), then my property would be worth 1.2, but I am not counting on that! I look at adding the ADU as a better return on investment than buying another property. If I sell in a few years, then I will take a bath so I went in with the thoughts of owning it for a long time.

This week, the market has been pretty solid, even with high numbers for inflation on the CPI and PPI. These high numbers are not unexpected, so maybe that means that the rates will level off for a while, even with the inflation. Let’s hope this is a good sign of things to come.
30-year Government Loans (FHA / VA) are in the high 4’s
Conventional Loans up to $647,200.00 – High 4’s low 5’s
High Balance Loans $647,201.00-$ 970,800.00 are in the high 4’s to low 5’s +
Jumbo loans above $970,801 are in the high 4’s +. We can mid 5’s with as little as 10% down. We can do 1-year findings on these too!
5/1, 7/1, 10/1 Arms are in the low 4’s for over $647,201. Under that, don’t bother right now!
Bank statement loans – They are available with 10% down again! 6’s+ depending on down and credit score.
Stated income loans – I have one bank with 30% down, but everything else has to be perfect! Interest rates are in the low 5’s.
0 down loans are in the 5’s – 620 credit score min right now! Mid 5’s, for the most part, up to $670,000.00 Price.
0 down Jumbo to $975,000.00 – 680 credit score – call for a quote
Private Money lenders – hard Money Loans – 35% down!
No Ratio Loans 30% down
Debt Service Coverage loans with as little as 25% down
Bridge Loans – are typically 5.49 – 6.49% with limited fees – But they get you where you need to go!
Interest rates are subject to change without notice! Above are LA County Loan Limits.

I will be around all weekend if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 xt. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!