Financing Accessory Dwelling Units to Level Up Your Investments

Discover your options for financing an accessory dwelling unit with CALCAP Lending.

Accessory dwelling units (ADUs) are additional, stand alone units built on a property with an existing unit. ADUs are typically small units, ranging from around 400 to 1,000 square feet. They must include a separate entrance from the main home, a bathroom, shower, kitchen, and a living/sleeping area. All requirements must be met for the unit to be considered an ADU.

ADUs are gaining a lot of popularity for their flexibility and affordability. In a 2020 report by Freddie Mac, properties with ADUs increased almost 7%, which is a significant climb from 1.6% reported 20 years prior. With a high demand for housing and a shortage in supply, ADUs are proving to be a great solution. Not only are they advantageous for the renter, but also for the investor.

Advantages of ADUs

Many investors are taking advantage of the housing shortage and increasing popularity of ADUs and are building accessory units on single family properties as well as smaller multifamily properties, such as quadplexes. Doing this allows them to create multiple streams of income on a single property. For example, if the investor is doing a fix and flip for a quick resale, they can now sell the property originally bought as a single family home as a dual unit property. If the investor is using a fix and hold strategy, they will earn passive profit from two renters on a single property. Either way, ADUs are providing more income to the investor while also supplying more people with a place to live. A win-win situation for all.

Another benefit of ADUs is that they are easy to finance. Investors have a few different loan products to choose from, but it is important to work with a lender that has experience in funding ADUs who can help find the right option for you.

Finding the Right Financing For An ADU

Bridge loans are a good option for investors who have multiple properties for sale and are in need of quick funding. These types of loans have short terms and often have high interest rates, but with the additional profit from the ADU, a high interest rate isn’t something to deter you from this type of loan.

Construction loans are another product to consider for an ADU. These loans are based on the future value of the property once the project is completed. Similarly to bridge loans, construction loans are short term, fast and flexible, making them a great option for investors working on multiple projects at once.

When deciding between these two types of loans you need to consider your project and investment goals. The loan product, cost, and terms will depend on whether you are purchasing a new property or building an ADU onto an existing property that you own.

In the case that neither a bridge loan or construction loan make sense for your specific project and you own an investment property with ample equity, you can explore cash out options and use those proceeds to fund your ADU project.

Time to Level Up

Accessory dwelling units offer many compelling advantages for investors. If you’re interested in ADUs, now is the time to get in on the action as they are quickly gaining popularity. Talk with a lender who knows the ADU landscape so you can find the right loan product for you and start building your portfolio right away!

Palm trees in LA against a pink/blue sky.

About CALCAP Lending

A division of CALCAP Advisors, CALCAP Lending benefits from the expertise of a seasoned team of professionals with extensive, successful track-records covering a variety of disciplines and leading large, nationally-recognized institutions. A private money direct lender, CALCAP Lending provides short to mid-term financing for property investors and businesses looking to purchase, refinance, renovate, and construct residential or commercial properties.

Lending FAQs

You've got questions, we've got answers.

What is private money lending?

Private money lending is a collateral-based lending strategy that is often associated with shorter terms and more attractive features. A private money loan offers more flexibility than a conventional mortgage or bank loan.

How does a private money loan work?

Private money lenders provide financing using money from private entities. Private money loans often work as bridges to help investors gather funds to achieve their short term real estate goals, but long term, permanent options may also provide.

Why would I choose a private money lender?

There are many advantages to using a private money lender for your real estate investments! Private money lenders can be more lenient when it comes to borrower credit issues, often there are no prepayment penalties, you can leverage your cash to buy multiple properties, and private money loans are quicker when compared with institutional loans.

Can I get prequalified for a loan?

CALCAP has a responsive loan team who are able to prequalify you. Contact a loan specialist at 833.816.5580 to get started.

How long does the lending process take?

Private money lending can be a quick and painless process. From start to finish, 30 days is common, however, turn around times can be as short as 10 business days.

Can I still be approved for a loan if I have bad credit?

Generally yes, we understand that people have temporary financial issues that come up, and we want to work with you to help you rise up financially to a better place. Offsets to credit concerns may include experience as a real estate investor, good cash reserves, and/or larger down payments.

I am a broker or investor, how can I work with CALCAP?

Business is built on relationships. Ours is no different. CALCAP Value and Preferred Partners receive exclusive rates and services. For more details and to submit your application, visit our partners page.

The side of a tall apartment building lit by the sun.