How to Build an ADU With $0 Out of Pocket

Here are six steps on actually how to build an ADU with zero money out of your pocket. In this video, my partner Israel here from Springboard Funding. We're going to walk you through all six steps on actually how our student Ralph actually bought this property, built this ADU right here in the backyard with no money down payment out of his pocket to do this project. We're going to break down all the numbers for you guys so you can check it out. You guys ready to do this? Let's go. The first step is to purchase the property. You got to know what to buy, what to look for when you buy these type of property, okay? So Ralph knew this property here hit the market and he knew the opportunity in this property, all right? This property has a basement and it has a backyard and it's on the corner lot and alley. He knew when it hit the market, he had to get it. Within a couple of hours, he got it accepted. He bought this property for $630,000 and how much did he put down on this? 25% on a conventional loan. Which is $157,500. So after he bought the property, he went and cleaned it up, painted it up, and then he turned that into a rental property. All right, so step two. What's step two, bro? You're basically time to get permits. Yes. So here's the secret, okay? This ADU is about 1,100 square foot. It's three bedroom, two bath, and you guys see the attached garage inside. Now you can build up to 1,500 square feet in this area, but there is a sweet spot. If you go over 1,200 square feet, the diminished return on a cost and rent, it don't make any sense anymore. If you put a two bedroom in 1,000 square feet, you can't get enough rent. So the sweet spot in the Seattle market is three bedroom, two bath, roughly about 1,000 to 1,100 square feet, and where you get the best ROI on your ARV and a cashflow. So you got to know that in your area, what is the idea of bedroom, bathroom, square footage to make the most sense in your area? Now to get survey and do plan the permits for one of these, it's about five to six months, okay? City do want to expedite and make it faster because typical, a new construction in Seattle, it's about nine months. These are five to six months, and that's the key to this right here, okay? Now, the next step we're going to talk to you guys about is really the game changer. What do you think, bro? Oh yeah, hands down. Step three. This is the step that really is the game changer in Seattle. More and more city across the United States is getting step three right now. Israel, tell them what step three is, baby. It's the condoization phase, where we go ahead and file an HOA and take this single family residential lot and create two tax parcels out of it. So you got the single family and the ADU that are now on their individual parcels. That allows us to elevate the value of each property and now get creative with the financing. And then this lot, it become free and clear because now it's separate and all the debt has stayed on the front house. This is the game changer, okay? This is happening across America. Real quick, if you're a real estate investor and you out there looking for a fix and flip property or fix and hold, or you want to do ADU in your area and try to get zero money down like what we did here, all right, let me know. I'm happy to fund it for you guys and gals out there, okay? Now, there's a link in the description. Hit that up and we'll be happy to help you guys. Step four. So remember when he bought this property, Ralph, he bought it on a 25% convention loan. His whole entire property here was on one parcel number. After he got the condemnation, now he has lot A and lot B, basically two different addresses, okay? But he still only needs one loan. But in order for him to get construction on this back, he had to have a free and clear. So what did he do to separate the backyard? He went ahead and got a brand new convention loan, refinancing the purchase zone and putting the debt on just the main house, giving him the back lot free and clear. So you got to get it. When he refinanced it, okay, he only told the new bank, I only want you to refi and only lot A. You don't get lot B. Lot B is separate now. And then the bank refinanced it. And then when they got the new loan, it's only recorded with lot A. So lot B now is free and clear with plans and permit. And now step five is where Israel comes in and do his magic. Step five is the mind blowing. Now you got a separate lot, free and clear with plans and permit. Tell them the magic, baby. Oh, this lot appraised for $250,000 day one. Boom. You're talking permits. You're talking this thing's shovel ready. So we went ahead and leveraged that equity, that value in that property. Leveraged the equity, that $200,000, okay? That he came with the house. Now with plans and permits, it's worth something now. It's worth $200,000. So we leveraged that $250,000. It has his down payment. So he's zero out of pocket. Zero out of pocket. On top of that, we gave him $450,000 to build this thing. All in, $450,000, soft cost, hard cost, interest carry cost, everything lumped into one. Just to keep it real simple for you guys, okay? And once everything's all said and done, it's expected to be worth $770, and he got out $1,500 when we closed this thing. So that means zero out of pocket. So he's telling me, bro, he did all this, this back here with no cash out of his pocket, and after everything, he's getting $1,500 back? Yeah. I made sure he was covered. Damn. All right. Step six, this is where we put everything together. After you get the construction loan, everything, right? And he's going to put a renter in here. Now this house right here, three bedrooms, two baths, roughly about 1,100 square feet. He rents between $3,500 to $4,000 in Seattle. Yes, you heard me right. $3,500 to $4,000. And the mortgage on this is like $3,400, $3,500, all in for Ralph. So if we get anything above $3,500, okay, it's easy to take care of this loan he's going to do called a DSCR loan. Explain what that is and what's after that. That's step six. What we're doing is taking a rental income of $3,500 and paying off that $450,000 construction loan. So now he can hold it in a 30-year loan without ever needing tax returns. And this right here, folks, okay, after Ralph rent this all out, get a tenant in here, covering the mortgage and some, and then he's going to go to him and he's going to refinance this from a construction loan into a 30-year fix. And then no money out of his pocket, even got some money back. And this is how Ralph actually got into the new construction here with zero money down. What else do you want to say, bro, on this construction loan and DSCR loan that he did that they should know about? I think it's incredible because not only do you have a brand new construction asset, the asset is covering the rents and he's got 40% equity in this thing. This thing's going to be worth, he's all in for $450,000 and it's going to be worth $770,000. It's a no brainer. It's a no brainer. This is the new play. If you want to retire from owning rental property, and you want to get 10 rental property, in five years, if you buy a house and put an ADU in the back, all you need is five of these property. And by the time you're done, you're going to have 10 property. If you buy one property a year and build out an ADU the following year, within five years, you can actually have basically five to 10 property. And this is the strategy that a lot of our students and we're doing across America. All right, that's a wrap everyone. If you guys liked the video and you say, oh my, you're not ADU, it's crazy. I want to do ADU. Okay. Make sure you guys give me a thumbs up. Make sure you put in the description that I want to learn more about ADU. Let me know. I'm happy to help you guys. All right. Teach you how to do that, how to get the funding, everything on how to do that. This is the new age of real estate investing everybody. Okay. So if you liked the video, give me a thumbs up, make sure you subscribe to the button. Okay. To our channel. And then please share this to your friends and family, right? Because we want to hit a main subscriber before the end of the year. All right. Until then, talk to y'all soon. Peace.