Why your ADU is worthless
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- Опубліковано 17 кві 2022
- UPDATE 2/20/2023: There is a fintech that uses the future rental income and value of your unbuilt ADU state-wide. Did a video with them here: • Don't make your ADU WO...
Almost every Accessory Dwelling Unit (ADU) faces the same challenge - lenders and financial institutions think they're worthless when you need them most! Almost every ADU loan has the same weakness that makes it so hard to get financing for the full cost of your ADU... but this new lending product changes the game for thousands and thousands of homeowners looking to develop an ADU.
So while every bank says your ADU is worthless when calculating your loan to value ratio, Redwood Credit Union is offering a construction loan that finances up to 90% CLTV and uses the "as complete" value of the ADU and its potential rental income! This video will explain what that means and why it's important.
This is not sponsored by Redwood Credit Union or the Napa Valley Community Foundation - I just like them and think this loan will be useful to a lot of my audience here on UA-cam.
For information about the ADU Construction Loan, contact:
Sean Charter, Assistant Manager - Construction Lending at Redwood Credit Union
Subject: ADU Construction Loan
Sean Charter
NMLS# 911547
SCharter@redwoodcu.org
Phone: (707) 576-5339 | (800) 609-9009 | Fax: (707) 541-2670
3033 Cleveland Avenue, Santa Rosa CA 95403
Press Release: www.redwoodcu.org/about/blog/...
Webinar about the loan: • Webinar: A New Way to ...
LOAN DETAILS:
Lender advertises a 4.375% fixed rate 20 year 2nd lien with a 12 month interest only draw and up to 90% CLTV including the value of the future ADU As Complete and its rental income. Must be in one of the eight counties where RCU offers membership (San Francisco, Contra Costa, Lake, Solano, Mendocino, Napa, Sonoma, Marin) and it is only valid on primary residences. Construction loan maximums at RCU are $300,000
VIDEO SUMMARY:
Budgeting the cost of the ADU and figuring out how you're going to pay for it is one of the toughest parts of planning an ADU! And traditional lending products from the big banks don't make it any easier!
Almost all banks treat your future ADU as if it's completely worthless when they're calculating your Loan To Value ratio.
Most homeowners secure large loans against the value of their home in the form of a mortgage, HELOC or any other big loan. And one of the basic measures banks use is to look at your Loan To Value ratio (LTV). The tricky part of building an ADU is that the ADU is not counted toward the value of your property until construction is complete and the property is assessed, so banks don't traditionally count the future value of the ADU or its rental income when calculating the risk of the loan.
There's a good reason we put rules on banks so that they avoid giving people debt that they can't afford, and selling that subprime debt! But ADUs create a unique opportunity for portfolio lenders (like some credit unions or private financing options) to offer a loan that secures the loan during the 9-18 months of construction with cash, and then converts to secure the loan with the value of the completed asset once construction is complete.
The new ADU construction loan is available for projects that fall within RCU's 8 north bay counties of membership. These are Sonoma County, Marin County, Napa County, Mendocino County, Lake County, San Francisco, Solano County, and Contra Costa County. Additionally, at this time it is also limited to builds on a borrower’s principal residence.
Please note that I'm not a lender, a broker, a lawyer, an advisor, a realtor, or anybody else with a license. This video is not about your specific situation, and it is meant for general information only.
MORE RESOURCES:
🏠 Subscribe to this channel: ua-cam.com/users/HowToADU?su...
🏠 Video about the Casita Coalition's ADU Finance Guide: • ADU Finance Guide
🏠 Link to the Casita Coalition's ADU Finance Guide: www.casitacoalition.org/guida...
🏠 More about this Loan: • Webinar: A New Way to ...
GET STARTED WITH YOUR OWN ADU PROJECT:
Share your project with me and get help: bit.ly/yt-adu
Meet more people in the How To ADUniverse:
🏠 Our Facebook Group: / howtoadu
🏠 My website: bit.ly/youtube-adu
🏠 My Twitter - @howtoadu
UPDATE 2/20/2023: There is a fintech that uses the future rental income and value of your unbuilt ADU state-wide. Did a video with them here: ua-cam.com/video/D9epJAc-D2k/v-deo.html
PHENOMENAL!!!! Rarely is so much valuable information delivered so clearly!
You are an absolute G, thank you so much for doing the hard work for us.
Thanks for watching
excellent info! sounds like we are in an upcoming ADU gold rush.
That’s how it feels. Thanks for watching
Good information. I love that California homeowners can now sell an ADU as a condo. I'm concerned with the potential for Costa-Hawkins to be overturned at the ballot box in 2024. I understand that the FDIC now holds a $15 billion portfolio of rent-controlled/rent-stabilized housing in NYC. The FDIC holding this portfolio tells me the bank wasn't able to sell the buildings for the value of the loan due to the restrictions of rent control, just-cause eviction, and tenancy rights that can be passed down through generations. I would love to see a video that examines the risk of propositions on the ballot in 2024 in California and the national movement for rent control and tenants' rights. How could these impact a homeowner who invests in an ADU?
Wow that is a big important question. I have a lot of access in the ADU space but I don’t know if I can present such a big topic in rent control very helpfully. Let me talk to some friends in tenant rights and see if I can do a good job. I wouldn’t want to do a mediocre video on such an important and complicated issue
Excellent information & video! 👍
For my future ADU, I’ve already spoken with my lending institution about a construction-to-mortgage loan, but I need to get more specifics about whether my LTV will include the projected added value of the ADU.
Thanks again! 👍
Glad it helps! Please feel free to come back and let us know what the lender says
Renovation loans from HUD & Fannie Mae are based on future value. This leads to a larger construction budget. We are still experiencing valuations in appraisals.
Thats my bank too . I didn't know about this loan.
It's a great loan. And all the jurisdictions in Napa County are about to be able to combine it with a forgivable county loan program - it's off the charts.
Working will a local lender on this for the last two years, I will be sending the VP this clip. Thanks Ryan!
Love it! He should get in touch with Sean Charter at RCU and Renee Schomp at Napa Sonoma ADU Center - they will show behind the curtain.
@@HowToADU Copy, do you know Sean? Have you talked to him?
@@ThatADUGuy just emailed back and forth regularly.
@@HowToADU copy. I have gone the route of the Board, but will try him this week. Great to hear!
Well done!
Thanks for watching! Let’s figure out who will do this in SoCal
@@HowToADU Agreed! During your financial travels let me know if you see anything where a person could finance an ADU build on another persons property? I imagine that there are so many people renting that could pay a hybrid mortgage of sorts, similar to a chattel loan.
Yeah that would be something. Have you talked to homestead? They were a Y combinator I think that revelry pivoted to SB9 stuff
@@HowToADU I haven't but will, thank you!
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Bank of Stockton! That's one of my banks. Thank you for this video, I'm sure it will help a lot of people. More banks need to calculate the future rental income these ADUs will bring in. I'm in San Joaquin County and only need a small loan that some people get for a car. But also self building so can't get this loan because I'm not hiring a GC.
Thanks, Arturo. Yeah, if you're going to owner build it makes these kinds of loans harder - but you'll hopefully get a lot of value out of that process!
How are you getting started? Can we possibly exchange contact info? I’m in Fresno and want to start as well
@@Cali415 sure, not much to it, my brother works with a architect and he pretty much drew it up then submitted. You can do all of that before you even approach a contractor. Send me your contact
Very interesting, thanks Ryan. And uh, thanks for the Margo Robbie bathtub shot too - hahaha.
All credit goes to her on that one 🤩
How about if the property is Free and Clear. I m guessing it be a First Loan then. But is there added benefits to being a First loan? I be doing most of the Construction myself. Like I done for all my properties. But this load as you saying. I might not be able to with this banks rules?
Here is one thing not discussed. If you are older--say your house is paid off--now, you take out a 30 year mortgage and it will extend past when you are dead. People move in--and for any reason they have to leave--now what? Answer, you get a "new tenant", and do you want, at this age, to be a Landlord? In CA, I know one guy who has not received rent for TWO years--are you prepared, can YOU make the payments-do you WANT to make the payments??? Think it through.
That’s definitely true. Lanlording isn’t for everybody. Having said that, the only require that the rental income is possible. I think they said that they do not enforce rental once the construction is complete.
From my experience with duplexes and triplexes, loans do not take into account income from the rental units. I have a heloc to pay for an ADU at a Duplex where I reside. Fortunately, I have a great deal of equity in the duplex.
Exactly. That's what makes this RCU loan so interesting. It explicitly does take the future rental income into account. While more traditional lenders sometimes have to see rental income for years before taking it into account, this portfolio lender has more flexibility. Thanks for watching :)
@@HowToADU let's hope that they do not charge oppressively high interest rates for this new type of loan.
The advertised fixed rate is in the video. It’s 4.375%
The general conditions of this loan are not unique. Renovation loans from HUD & Fannie have been around since the 70's. Loan maximums are based on the future appraised value and include fund control. Construction loans also offer similar features. Given the untimely delay in the permitting these days, you want to time funding the loan when there is certainty of when permits are issued. You should also consider refinancing to conventional loans when rates are favorable and to remove mortgage insurance.
Hot take! I thought Fannie wasn’t allowed to count rental income of the unbuilt ADU.
@@HowToADU Yes. Fannie does not allow rental income to apply to your loan qualification. But I've heard rumors.
In today's hot market, homeowners are sitting on a lot of equity. I did an analysis in the San Diego neighborhood (large lots) on a subset of 1,000 records. 69% had sufficient equity to build 1br/ 1ba with a cash-out refi. That's 700 units! And if they don't have sufficient equity, I can always get a larger construction budget with a renovation loan. The financing is there for homeowners.
@@WillJohnsonSD_Inspector Super interesting. Thanks for sharing!
Ryan, is the cal HFA grant available with this "as complete " loan? 🙏
I have 2 sources that say it’s in the works and one that says there will be news in may/June. But not at this very moment.
Here's is a link to the one hour webinar with RCU about this loan: ua-cam.com/video/IWb0GvNHdhE/v-deo.html
My wife and I are building our ADU, but we are in Sacramento. How does one go about looking for ADU designer/planner?
I'm thinking about spinning up a directory with a friend that would help people do this: aduinsider.com/
City of Sacramento is on the verge of releasing some standard plans that you can use for free, or work with Inspired ADUs to customize to your site. (They're the architects who are designing the plans for Sacramento).
And the other thing I often recommend is using the AIA directory for your city. I actually have a couple specific recommendations in Sac depending on your project scope if you want to book a call: how-to-adu.com/get-started-booking
Oh darn I need something in Alameda County. Do you have a similar loan resource in alameda ?
We all need it! My hope is that Habitat for Humanity does something like this in AC. They have a very good renovation loan program.
Is there something similar in LA County?
@@Lynaka1 I haven't found one yet, but Self Help CU is supposed to be statewide so you may want to check if they have a good loan that takes a second and uses an escrow to control funds.
UPDATE 2/20/2023: There is a fintech that uses the future rental income and value of your unbuilt ADU state-wide. Did a video with them here: ua-cam.com/video/D9epJAc-D2k/v-deo.html
I am wishing I was in the Bay Area! I wonder if Holden One Credit Union would consider this loan you are describing? I have no clue how to introduce it to them.
Golden One, not Holden.
Its not the same but our sponsor RenoFi can help you in Sac. loan.renofi.com/how-to-adu/
I wish RCU consider San Diego too. Any recommendation for SD lender?
If you're trying to get what the RCU loan does, RenoFi has products that take future value of the ADU and rental income into account (and some unconventional equity trading options that are different than RCU's) - they're a sponsor of the channel so I'm biased! loan.renofi.com/how-to-adu/
@@HowToADU thank you so much. I will reach our to RenoFi.
Is there an organization that services Orange County California with this kind of product?
Not yet, to my knowledge, but you can share the video with your local credit union's construction lending department and ask if there's anybody looking at the possibility.
Any idea if there’s something similar in Los Angeles?
I haven't seen one like this in LA. If you subscribe to this channel, I'll definitely cover it when I see it. The other group that does a great job promoting this type of thing is the LA Innovation Team - when programs like the LA ADU Accelerator Program release grants, they're the first I see publishing.
@@HowToADU subscribe? I am…and I think anyone interested in real estate development/investing in California who isn’t subscribed is a moron. You’re amazing. Really appreciate everything you share. Ty!!
Thank you :)))
UPDATE 2/20/2023: There is a fintech that uses the future rental income and value of your unbuilt ADU state-wide. Did a video with them here: ua-cam.com/video/D9epJAc-D2k/v-deo.html
Does it increase the Property Tax?
Speak to your county tax assessor for details. Generally, new construction will be assessed and you will have to pay property taxes on it. Generally, your existing home value will not be re-assessed until there's a change in ownership. So mostly it's the ADU only.
Great explanation!
Thanks!
you take the long way around the barn
🚜 😜
UPDATE 2/20/2023: There is a fintech that uses the future rental income and value of your unbuilt ADU state-wide. Did a video with them here: ua-cam.com/video/D9epJAc-D2k/v-deo.html
So far 3 people I know have ADU and for odd reasons they can’t get the right appraisal value with the adu . Why is that , you mentioned hundreds of thousands go on top of the value of the house once you build an ADU
Sadly, that's a common story. and these inaccurate appraisals then become the basis for other inaccurate appraisals. Eventually, people will sell homes with ADUs and those sales will inform comparative appraisals and improve accuracy, but it's a long road because there's such a large perceived difference (by appraisers) between a 400 sq ft Attached ADU and a 1200 sq ft detached ADU built onsite and a 1200 sq ft detached manufactured home ADU.
When you work with somebody like RCU though, the financial institution is highly incentivized to work with a well-trained appraiser who knows how to evaluate the project based on a thorough scope of work.
Will Napa accept JADU approval
Napa is very good about ADUs and JADUs. If you're wondering about the loan, you should talk to Sean at Redwood Credit Union