ADUs, mother-in-law units, granny flats – no matter what you call them – are a hot commodity in Portland. They come in all shapes and forms: basement renovations, garage conversions and free standing units. But they aren’t just to house your in-laws when they come to town anymore. Homeowners all over town are using them to offset their housing expenses and build long-term wealth. Whether you rent to long-term tenants or list it Airbnb-style, an ADU can turn your property into an income-producing asset. No two are alike, and many of them could be considered pieces of art. Designing one is fun, finding the financing for one is another story. Read on to learn how to finance ADUs in Portland.
Use the equity in your home
If you have equity available in your home, you’re half way there. Simply refinance your existing mortgage to the maximum limit (typically 80% of your appraised value) with a fixed rate mortgage. This locks in a low interest rate to fund your ADU construction. If you need a little extra cash, follow up with a Home Equity Line of Credit. However, HELOCs are typically variable rate loans and the monthly payment terms can be aggressive. It’s advisable to keep these just for any overage you may need.
What if I don’t have a lot of equity in my home?
Renovation loans are your answer. Renovation loans use the future value of your property – the value of your home AFTER you’ve built the ADU. An appraiser gives an opinion of that future value, and we work backwards from there to determine the equity available for construction. This is different than a cash out refinance where you’re given all the cash at close and are sent on your way to build your ADU. Renovation loans require that the funds are held in an escrow account. Those funds are used to pay your contractor on a draw basis as work is completed. This keeps everyone on track and ensures you end up with the ADU that your estimated future value was based on.
Changes in Portland are opening the door for even more ADUs
Until recently, renovation loans had one major drawback: they only allowed ADUs that were attached to the main house. Think of a basement conversion. If you didn’t have much equity and wanted to build a free-standing ADU, you had to find some other way to finance it. That changed recently. With the sky-high demand for these free-standing ADUs in Portland, we can now finance them on properties in the City of Portland.
Portland was one of the first cities to embrace ADUs as a sustainable housing solution. As a result, it is being used as a test market for financing these detached units. If successful, this program will likely be opened in other cities across the U.S.
Adding to the ADU movement, the City of Portland has waived the required System Development Charges (SDC) when building an ADU. The waiver is valid through July 31, 2018, provided that the ADU is constructed and receives final inspection and certification of occupancy by June 30, 2019.
Interested in ADUs? Bring your questions. Let’s see what we can build together!