CHAPTER 15: FINANCING YOUR ADU OR PRADU
When it comes to financing your steel-frame ADU or PRADU, the first question that needs answering is why you are having it built. While it may not seem like a very important question from a financial aspect, it is critical. The answer you give will heavily dictate which road you go down as far as financing is concerned. There is also the perennial chicken-and-egg situation: If you will need a loan to finance the construction of your ADU, should you decide on the size and style you want to build and then find out if you can borrow sufficient money to make your plans a reality, or should you establish how much you can borrow to avoid disappointment at a later date? We will cover that a little later on, but for now, let us concentrate on the reasoning for building your ADU. The five main reasons to build an ADU or PRADU • Maximizing the value of your property • Generating rental income • Providing independent accommodation for a home-help/carer • Providing independent accommodating for an aging relative/parent(s) • Providing independent accommodation an adult child Maximizing the value of your property – Your current home will have a specific value. However, increasing the amount of livable accommodation may increase the property’s overall value to a greater extent than the cost to build. In many cases, the plot of land on which the original home has been built is underdeveloped, and many local authorities are keen to issue permits for ADUs in such instances. Generating rental income – Here there could be two reasons for you wanting to rent out your newly-built ADU. First, you may have money you want to invest to generate extra income, so investing in an ADU will not only help you generate income through rent, but property is generally seen as an inflation-proof investment where you not only get a return on capital invested (i.e., rent), but also get an increase in the value of the investment (i.e., increased property value over time). The second reason is because you don’t have enough money to fund the entire cost of an ADU, so you decide to let it out and use the rent to cover the loan repayments.
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