Finance · 9 min read · March 17, 2026 · 432 words
HELOC, cash-out, renovation loan: the ADU money decision
A practical comparison of the four ways LA homeowners actually pay for an ADU — including the one product (renovation loan) that lets you borrow against the finished value.
Key takeaways
- HELOC: fast close, variable rate, draws as needed. Best for high-equity owners.
- Cash-out refi: fixed rate, requires re-underwriting the whole loan. Best when current rate is below market.
- CHOICERenovation / HomeStyle: borrows against finished value. Best for low-equity owners.
Answered in this guide
Jump straight to the question you came in with — every answer is on this page, with links onward to the deeper guide.
- What kind of return on investment can I expect?
- Are there grants or rebates available?
- What does an ADU cost in LA?
- What's included in your turnkey number?
- Will building an ADU raise my property taxes?
- Can I rent my ADU on Airbnb?
More across the studio · the full FAQ map · the reference desk
Most LA ADUs cost between $250K and $400K all-in. Cash buyers are rare. Among financed projects, four products dominate: HELOC, cash-out refinance, Freddie Mac CHOICERenovation, and FHA 203(k). Each has a different sweet spot. Pair this with the financing playbook for the decision framing, then run scenarios in the financing calculator.
HELOC: fast, flexible, variable
A home equity line of credit is the fastest path to capital — typical close in 2–4 weeks. You draw funds as the project hits milestones. Rate is variable, indexed to prime. Best for homeowners who already hold significant equity (40%+ LTV) and don't mind interest-rate risk during the build. The CFPB HELOC explainer is the cleanest reference.
Cash-out refinance
Refinance the primary mortgage at a higher balance and take the difference in cash. Locks in a fixed rate. Math only works if the new rate is at or below the old rate, or the homeowner is OK with a higher monthly payment. With current 30-year rates well above 6%, most LA homeowners with a sub-4% existing mortgage avoid this.
Renovation loans: borrowing against the after-built value
This is the product most homeowners don't know exists. CHOICERenovation (Freddie Mac) and HomeStyle (Fannie Mae) let you finance the purchase or refinance based on the appraised after-built value. The lender funds construction in draws against an appraisal that already accounts for the finished ADU. For a homeowner who only has 10–15% equity, this is the only route to a fully financed ADU.
FHA 203(k)
Backed by HUD, the 203(k) is the FHA cousin of CHOICERenovation. Lower credit-score floor (~580) but adds mortgage insurance and stricter contractor requirements. Typically used by first-time buyers adding an ADU at purchase, not by existing owners.
Side-by-side
- HELOC: fast close, variable rate, draws as needed. Best for high-equity owners.
- Cash-out refi: fixed rate, requires re-underwriting the whole loan. Best when current rate is below market.
- CHOICERenovation / HomeStyle: borrows against finished value. Best for low-equity owners.
- FHA 203(k): low credit floor, adds MIP. Best for first-time buyers.
Sources
- Freddie Mac CHOICERenovation · Freddie Mac
- FHA 203(k) Rehabilitation Mortgage · U.S. Department of Housing and Urban Development
- CFPB HELOC Guide · Consumer Financial Protection Bureau
- IRS Publication 936 — Home Mortgage Interest Deduction · Internal Revenue Service
- Fannie Mae HomeStyle Renovation · Fannie Mae
Next chapter · 01 of 03
Finance · 7 min read
Will your ADU trigger a property tax reassessment?
Loan picked. Now see what the county does to your assessed value the day occupancy is signed off.
Under Prop 13 and BOE Rule 463, only the new construction value is reassessed — not the entire property. A practical walkthrough of how the LA County Assessor calculates the bump.
FAQ · Finance
Common questions on finance
The questions readers send us most after this guide.
What kind of return on investment can I expect?
Across the LA projects we deliver, owners see 10–16% annual return on construction cost in long-term rental. The math: a $280K detached ADU renting at $2,800/month grosses $33,600/year — roughly a 12% gross yield before expenses. Property value uplift is typically 1.4–1.7× the build cost on appraisal.Are there grants or rebates available?
The CalHFA ADU Grant Program ($40K toward soft costs) was paused in 2023 but a successor is in late-stage legislative drafting. LADWP offers rebates for high-efficiency HVAC and induction cooktops. We track every active program and apply on your behalf.What does an ADU cost in LA?
Pricing depends on size, finish level, and site conditions. For 2026, our detached ADUs start around $250K for a 480 sq ft studio and run up to about $480K for a 1,200 sq ft custom build. Garage conversions begin around $145K. JADUs typically run $95K–$140K.What's included in your turnkey number?
Architectural and structural design, Title 24 energy compliance, full permit fees and plan check, soils report when required, foundation, framing, MEP rough-in, insulation, drywall, doors, windows, kitchen, bathroom, flooring, paint, fixtures, and final cleaning. Excluded: landscaping beyond grading, solar (offered separately), and LADWP service upgrades when the existing panel can't carry the load.Will building an ADU raise my property taxes?
Only the ADU portion is reassessed at its construction cost — the existing main house keeps its Prop 13 basis. On a typical $280K ADU, expect a property tax increase of roughly $2,800/year at LA's 1% rate plus local assessments.Can I rent my ADU on Airbnb?
Short-term rentals (under 30 days) are restricted in the City of Los Angeles to your primary residence and require Home-Sharing Ordinance registration. ADUs built after 2017 are generally ineligible for STR registration. Long-term rentals (30+ days) are permitted in nearly all jurisdictions without restriction.
Reference desk · Finance
More answers from the California reference desk
City-specific questions pulled from our 5,000-answer FAQ corpus — every link opens a deeper desk page.
What financing options work best for a ADU in Beverly Hills?
Four paths cover almost every Beverly Hills ADU: (1) HELOC if you have 30%+ equity and want flexibility, rates 8.0–9.5%; (2) cash-out refinance if your existing rate is above 6.75%; (3) renovation loan (Fannie HomeStyle / FHA 203k) that funds against future appraised value — useful when current equity is thin; (4) construction-to-perm if the scope is over $200K. CalHFA ADU grants of up to $40K are exhausted but the program may renew — check before assuming.What ROI should I expect from a ADU in Beverly Hills?
A rented ADU in Beverly Hills typically produces 9–12% cash-on-cash return after operating costs — driven by $3,400/mo for a one-bedroom and $4,800/mo for a two-bedroom at current Beverly Hills rents. Run the math on $165K as a baseline and your specific size and finish on top.How much cash do I need upfront for a ADU in Beverly Hills?
Most homeowners in Beverly Hills fund 15–25% in cash and finance the rest. On a project starting at $165K, that's roughly $25K–$45K of liquid funds for design, permits, deposits, and the first draw before the construction loan starts cycling. Reserve an additional 8–12% contingency you don't touch unless triggered.Will a ADU appraise for what I spent in Beverly Hills?
In Beverly Hills, ADU appraisals typically recognize 70–95% of construction cost in added value, with the rest captured through rental income on the income-approach side. The comp pool matters more than the spec — three similar nearby transactions in the last 6 months drive the appraisal more than any single material choice.Is a ADU in Beverly Hills tax-deductible?
Construction on your primary residence is not directly deductible on federal taxes. Three indirect paths matter: (1) HELOC or refi interest on funds spent improving the home is deductible up to the $750K mortgage cap; (2) capital improvements add to your cost basis and reduce capital gains at sale; (3) energy-efficiency upgrades (heat pump, insulation, solar) qualify for federal IRA tax credits through 2032. Consult a CPA on your specific Beverly Hills property tax exposure.What financing options work best for a garage conversion in Beverly Hills?
Four paths cover almost every Beverly Hills garage conversion: (1) HELOC if you have 30%+ equity and want flexibility, rates 8.0–9.5%; (2) cash-out refinance if your existing rate is above 6.75%; (3) renovation loan (Fannie HomeStyle / FHA 203k) that funds against future appraised value — useful when current equity is thin; (4) construction-to-perm if the scope is over $200K. CalHFA ADU grants of up to $40K are exhausted but the program may renew — check before assuming.What ROI should I expect from a garage conversion in Beverly Hills?
A rented garage conversion in Beverly Hills typically produces 9–12% cash-on-cash return after operating costs — driven by $3,400/mo for a one-bedroom and $4,800/mo for a two-bedroom at current Beverly Hills rents. Run the math on $165K as a baseline and your specific size and finish on top.How much cash do I need upfront for a garage conversion in Beverly Hills?
Most homeowners in Beverly Hills fund 15–25% in cash and finance the rest. On a project starting at $165K, that's roughly $25K–$45K of liquid funds for design, permits, deposits, and the first draw before the construction loan starts cycling. Reserve an additional 8–12% contingency you don't touch unless triggered.Will a garage conversion appraise for what I spent in Beverly Hills?
In Beverly Hills, ADU appraisals typically recognize 70–95% of construction cost in added value, with the rest captured through rental income on the income-approach side. The comp pool matters more than the spec — three similar nearby transactions in the last 6 months drive the appraisal more than any single material choice.Is a garage conversion in Beverly Hills tax-deductible?
Construction on your primary residence is not directly deductible on federal taxes. Three indirect paths matter: (1) HELOC or refi interest on funds spent improving the home is deductible up to the $750K mortgage cap; (2) capital improvements add to your cost basis and reduce capital gains at sale; (3) energy-efficiency upgrades (heat pump, insulation, solar) qualify for federal IRA tax credits through 2032. Consult a CPA on your specific Beverly Hills property tax exposure.What financing options work best for a JADU in Beverly Hills?
Four paths cover almost every Beverly Hills JADU: (1) HELOC if you have 30%+ equity and want flexibility, rates 8.0–9.5%; (2) cash-out refinance if your existing rate is above 6.75%; (3) renovation loan (Fannie HomeStyle / FHA 203k) that funds against future appraised value — useful when current equity is thin; (4) construction-to-perm if the scope is over $200K. CalHFA ADU grants of up to $40K are exhausted but the program may renew — check before assuming.What ROI should I expect from a JADU in Beverly Hills?
A rented JADU in Beverly Hills typically produces 9–12% cash-on-cash return after operating costs — driven by $3,400/mo for a one-bedroom and $4,800/mo for a two-bedroom at current Beverly Hills rents. Run the math on $165K as a baseline and your specific size and finish on top.
Sources & further reading
- California Government Code §65852.2 — statewide ADU framework (ministerial review, 60-day clock).
- LADBS — Accessory Dwelling Unit information bulletins and current permit fee schedule.
- HCD — California Department of Housing & Community Development, ADU handbook (2024 update).
- Internal data: aggregated from real California ADU and residential construction projects, 2018–2025.
Continue your read · the editorial path
We chained these chapters in the order LA homeowners actually need them. Each one picks up where the last one left a question open.
02 / 03
Finance · 7 min
What an ADU actually rents for in LA in 2025
Long-term, mid-term, and short-term rental yields by neighborhood — and why the headline ROI you see in marketing is usually 30% optimistic.
Read chapter →03 / 03
Finance · 8 min
Financing an ADU without overpaying for the privilege
HELOC, cash-out refi, renovation loan, or cash: a side-by-side on the four real paths LA homeowners use — and the rate math that decides between them.
Read chapter →
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