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ADU update / Appraisal, Financing & Construction update.


Background

In March 2017 I purchased my first home for $315K, it was zoned for an ADU. The small 2 bed, 1 bath 800 sf brick structure required a full remodel and had an additional 800 sf unfinished basement. Before I moved in, I remodeled the main level, investing $60K. In summer 2018 I spent $40K to finish the basement – adding a master suite making the home 3 bed, 2 baths. The improvements were part of a thoughtful plan to add equity to my home in order to finance a future ADU (accessory dwelling unit). In January 2020 I engaged an architect to design the ADU and we submitted to the City of Denver mid-2020 for a permit. In December 2020 the city approved our permit and I began working with a lender to finance the project.

Construction Loan for an ADU

Before you contact a lender, you need to have your architectural plans completed, approval of the permit from the city, and select the builder you plan to work with. The builder will use the plans from your architect to come up with a detailed bid – the bid and plans must be in place to get a construction loan. The construction bid to build my ADU is $360K FirstBank is well known in the Denver community for construction loans and I went with them based on a recommendation from my builder and knowing their good reputation. I loved working with Megan MacHatton, she was excellent!! Luckily with my income, I was fortunate enough to qualify for a construction loan. When I initially purchased the home in 2017 my mom had to co-sign with me. She needed taxes for the last two years, bank statements, etc. I had to up my insurance to cover the construction project in my backyard. We talked numbers, but nothing could be determined until we had an appraisal done.

Appraisal

Appraising an ADU presents many challenges. ADUs are very uncommon in the Denver market because the concept started in 2010. Of the 200 ADUs built, most owners keep them and therefore true market value is not well established. In my appraisal, they had one good comp that sold for $806K with an ADU and he used another sale 6 miles SW in Overland for $925K with an ADU. He also considered one property with a basement ADU that sold for $750K. Lastly, he used two properties similar to the existing main house without ADUs that had sold for $538K and $549K and adjusted them $240K to account for the ADU. The appraised value ended up at $770,000 for the main house plus the ADU. Unfortunately, this is not good because I know that the main house is worth at least $540K and I’m planning to spend $360K building the new ADU. Ideally, the appraisal would be at least $900K (value of the main house + cost of constructing the ADU). Luckily, I was prepared for the low appraisal as it is commonplace with ADUs.

Financing

FirstBank will give you a construction loan for 80% of the appraised value – so my loan is for $616K (80% of $770K appraised value). They carried the loan for the entire property, so they paid off and took over the $271K loan on the primary house plus the $360K loan for construction of the ADU. It’s a $616K interest only, one year loan with a balloon payment due after 12 months. My interest rate is 4%. My payments start at $945/m and as the builder takes draws on the loan, the monthly payment will max out at $1890/m. I currently rent the main house for $2300/m so the mortgage is sufficiently covered during construction. Because the appraisal came in low, I had to bring a $23K down payment to closing and my closing costs were $5K. We estimate construction to take 6 months. After construction, I plan to refinance the home into a traditional 30-year mortgage at a lower interest rate and I’m crossing my fingers that after completion I can get a better appraisal at that time.

Posted in: ADU, Blog, Uncategorized Tagged: ADU

ADU Update: Hiring an Architect

I purchased my home with an ADU zoned lot in March 2017. From day one, I started researching building an ADU. In August 2018 I engaged an architect to complete a feasibility study which was an important first step. By October 2019 after over two years of research, I finally had a deep enough understanding of the complicated Denver ADU regulations to hire an architect.

Aug 2018
Step #1: Feasibility Study
I engaged architect Will Martin, owner of StudiObvio, for a feasibility study to understand what I could build on my lot. This process was foundational for me to understand the basic size and layout of my ADU in the beginning. This gave me a concrete understanding of my end goal and always kept me motivated to push forward. A feasibility study costs $1500 and ideally is done during the buying process so you can make an educated decision when purchasing.

 

October 2019
Step #2: Interview Architects

Who you choose to build your ADU project is extremely important. There are many different architects with different specializations. I narrowed my search for an architect to only those architects who are experienced in building accessory dwelling units. ADUs come with a whole lot of special architectural considerations including bulk plain requirements, 75% on the second level, and special considerations for the water and sewer. I interviewed three architects before making a final decision.

Will Martin – StudiObvio
I initially talked to Will because he did the awesome feasibility study for me. Unfortunately after many conversations with them, I simply could not afford their fees. They were charging around $25,000 for the design and supervision during construction of the ADU. I also didn’t choose to work with Will because of his work schedule did not accommodate my ADU design within my timeframe.

Carrie Baron Architect, LLC
I also spoke with an architect Carrie Baron Architect, LLC. She has built several ADUs in Denver and I’ve actually seen many of her designs in-person after construction. Carie is a very lovely person and I feel like she would be great to work with because she’s a great listener and has the right experience with this type of project. Her design fees were affordable.

John Schwarz, SimpleHomes
I eventually decided to use my friends at SimpleHomes to design the ADU. SimpleHomes is owned by David Schultz, the owner of L&D Construction who has led a public education campaign for Denver homeowners to understand this complex building form. They have built 30+ ADUs in Denver and are well-versed with ADU Construction and design. I decided to use Simple Homes to design the ADU because the technology they use during the design process is integrated into the programs necessary for the structure to be built in a factory efficiently. SimpleHomes architect John Schwarz designs the building plans in 3D for visualization of scale, material, and colors. Once finalized, the design can be plugged into their system to program the design in the factory to build it exactly to your plan in the factory just north of downtown Denver. A big factor in the decision to use SimpleHomes was their wonderful Sales Manager & Broker, Sarah Senderhauf who provided counsel for many years and helped me understand the ADU building process.
Paul Minor, Blackstone Architecture, Inc.
Hindsight is always 20/20 and it is worth mentioning here that I really regret not picking an architect based on their building style. I wanted a traditional look with elements of the very popular farmhouse style. My architect and I had very different styles and that became a problem during the design process. Make sure to read my next blog chronicling the design process with SimpleHomes that includes a review of my experience and the lessons I learned. I took a photo of a home Paul designed and I kept trying to get my architect to recreate that style. I ended up going back to the home many times and eventually ran into the owner and he told me the architects name. I highly recommend vetting your architect’s style first and foremost

 

Posted in: ADU, Blog

ADU Guide / How to find a property zoned for an ADU in Denver

Part 1: How to find a property zoned for an ADU in DENVER
Navigating Denver zoning code and understanding how to identify ADU properties takes an expert. If you have a passion for this type of thing you can figure it out. The first step is to understand the general areas and neighborhoods where the zoning accommodates building an ADU.

 

Where to look:
Currently, only about 15% of Denver is zoned for ADUs. Neighborhoods, where ADU zoning is commonly found, including Berkeley, Sunnyside, West Colfax, Barnum, Whittier, Cole, Clayton, Platte Park, Overland, Baker, and Cap Hill.
A big zoning change is in the works and in the next iteration of our zoning code many more areas will have ADU zoning. It will take probably about 5 to 10 years for the zoning decisions to be finalized so don’t hold your breath waiting.

 

Accessory Dwelling Search 

 

Understanding the zoning code:

We’re about to get really technical regarding the Denver zoning code. Any citizen can find the entire 1300 page zoning document online. Here is a link to the Denver Zoning Code. The people most well-versed in the zoning code are trained architects.

We recommend:  StudioBvio

 

The simplest way to start understanding the zoning code is by learning the basics.
When evaluating a property you will need to know the lot size and zoning code found on most listings or on the City’s Assessor’s website
There are 28 different zoning codes that allow this type of building structure.  Within each zoning code, there is a minimum lot size which is going to exclude some smaller lots in the neighborhood. The lot will accommodate an ADU if it has the zoning code and lots size in the list below.
Once you verify that the property is in fact zoned correctly and has a big enough lot there are a few properties that are more ideal for an ADU than others.

 

Ideal ADU lots:
1. Homes on corner lights are ideal for ADU use to access an avenue rather than an alley.
2. Lots without garage are preferred to avoid the expense of demolishing an old garage.
3. You’re lot size and zoning code will determine the size of ADU you can put on your property. Bigger lots accommodate bigger ADUs. So if I was looking for property to build ab ADU I would only purchase something with a large lot. Denver ADUs come in three sizes: 650 sq ft, 864 sq ft, and 1000 sq ft. Fixed costs are equal no matter the size, so a larger ADU is a much better value.

 

Project Guide for Detached Dwelling Units
The Project Guide for ADUs is intended to provide you an overview of the permitting process for detached accessory dwelling units (ADUs) such as a guest house that is detached from the primary residence and contains provisions for sleeping, cooking, and sanitation.

 

Help finding and ADU:
The reality is that even a real estate agent can’t filter properties that met the ADU criteria and send you these listing. Because you have to run the code and the lot size for thousands of different properties it is nearly impossible on the current MLS system that real estate agents use. On my website, I have an area specifically designed to solve this problem.
If you want to buy a property zone for an ADU I highly recommend utilizing a real estate professional who is knowledgeable in this area.

Posted in: ADU, Blog

Video walk thru – Denver ADU zoning explained

What is E-SU- D1x? Watch my video on Denver zoning codes and finding the right property to build an ADU.

How to Find an ADU Zone lot in DENVER

Navigating Denver zoning code and understanding how to identify ADU properties takes an expert. However, if you have a passion for this type of thing I’ve written this blog to help you figure it:

If you are looking for a property where you can build an ADU, you should head over to my website. It is the only place the cross filters the zoning code and lot size to show you all properties for sale in Denver that will accommodate a ADU. https://livingroomdenver.com/adus/

This video also includes my personal story of how I found my ADU zoned lot.

Posted in: ADU, Blog

Check out Kassidy on The Richer Geek

Kassidy was featured on The Richer Geek earlier this month.  We have to link to the podcast here.

https://www.therichergeek.com/podcast/make-money-from-your-property-build-adu

 

 

Posted in: ADU

Living Room Real Estate Featured in Denverite

One thing that sets Living Room Denver apart of other real estate firms is our knowledge about Accessory Dwelling Units (ADU) — also known as granny flats, carriage houses or casitas. LivingRoomDenver.com is the only website that identifies ADU zoned properties. Most real estate agents don’t even know what an ADU is, let alone the specific zoning codes and lot size. It was an honor to get recognized by Denverite for this contribution. This is an exciting time for ADU enthusiasts as the city of Denver pushes forward on a plan to make ADUs allowed throughout the city with the new Blueprint Denver planning tool which will be reviewed by city council on April 22nd. Being on top of policy, understanding the zoning code, and being a leader in developing better ways for our clients to find properties are a few ways we stand out!

Read the Denverite Article

Posted in: ADU, Blog, Denver News & Community Updates

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