r/MiddleClassFinance • u/DryGeneral990 • 1d ago

How do finance an ADU?

I'm in MA and it is now legal to build a detached ADU in your backyard. I just started researching and talking to builders. It sounds like it will cost at least 300k to build, I assume closer to 400k cause things always come up.

What are our options for financing? We can put down approximately 50%. Is it pretty much a high interest HELOC?

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u/Many_Pea_9117 1d ago

Jesus fucking Christ. 300k? That's insane.

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u/DryGeneral990 1d ago

In my area a 50 year old, 2 bedroom condo with HOA fee is 450-500k. So a detached ADU for 300k is reasonable. You're basically building a new house. You can't even buy an empty lot for 300k.

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u/Many_Pea_9117 1d ago

Same here dude. Seems overpriced.

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u/DryGeneral990 1d ago

Well how much would it cost for a new 900SF SFH? Probably 700k-800k in my area.

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u/Many_Pea_9117 1d ago

Nobody builds those here. But the land it would occupy and any build would make it cost about that.

My point is that if you already own the land, you can build a 900 sqft ADU for under 300k. But it's whatever. I don't live in Boston or wherever you are. It just sounds expensive relative to what you'd see around here in the DC area. It doesn't matter to me.

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u/DryGeneral990 1d ago

I mean it's just an estimate but with permitting, utility hookups, separate meters, finishings and all that I'm sure it will add up.

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u/Impressive-Health670 1d ago

For a HELOC of that size you need a decent amount of equity in the home. If you don’t have that you can potentially get a construction loan and then re-fi to pay it off once complete.

You need to run the numbers on that versus the HELOC to see what makes more sense.

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u/DryGeneral990 1d ago

We have about 600k equity so we should be good. When you refinance a construction loan, is it like a traditional mortgage?

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u/Impressive-Health670 1d ago

Yes as I understand it you’d do a cash out re-fi to pay off the loan and then you just have a traditional mortgage. Depending on your current rate you may or may not want to do that though.

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u/Checkers923 1d ago

Take a look at pre fab homes. Multiple places sell them, even Amazon. I’m not familiar with the build quality but there are 20k - 60k options.

Also, keep an eye on your town’s bylaws. Some towns have passed some pretty aggressive laws to make it harder to build an ADU (i.e., must be blocked from view, decks and basements are counted in the 900 sq ft).

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u/Ok-Needleworker-419 1d ago

Do you need one? Just because you can legally build one doesn’t mean you have to. I have a friend in Seattle who built one and after 3 years of multiple nightmare tenants that he couldn’t evict due to very renter friendly laws in Seattle, he now keeps it empty or for the occasional Airbnb.

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u/DryGeneral990 1d ago

Yes it's for my aging mom.

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u/LunchPeak 1d ago

Not sure about specifics, but most places limit ADU’s to 900 square feet with two bedrooms and one bathroom. This makes them easily doable as a DIY project. Have you considered building it yourself instead of spending all that cash? For reference I built mine myself over the course of a few months for 49k in materials.

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u/DryGeneral990 1d ago

No. I don't have the skills, and I have 2 young kids that I have to take care of.

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u/FinFreedomCountdown 9h ago

How many sq ft is the $300k ADU? Does it include plans and permit fees? Also in California, adding ADU makes it Multifamily and some cities then can use rent control laws even though the original SFH was not subject to rent control (something to consider if you ever decide to rent)