Cash-Out Refinance ADU ROI Calculator
Use your home equity to finance ADU construction. This calculator shows your projected rental income, break-even timeline, and total return on investment for accessory dwelling units in California and Washington.
Key Takeaways
- California SB 9 allows homeowners to build ADUs on single-family lots statewide, bypassing local zoning restrictions since January 2022.
- Washington HB 1110 requires cities with 25,000+ residents to permit at least 2 ADUs per residential lot effective June 2025.
- The Equity-to-Debt Arbitrage Strategy (cash-out refinance for ADU construction) provides lump-sum financing at mortgage rates (6.0-7.0%) versus construction loan rates (8-12%), turning idle equity into income-producing square footage.
- Orange County ADU rental income averages $2,200-$3,500/month depending on unit size, adding 15-25% to property value.
| ADU Type | Avg. Cost (CA) | Avg. Cost (WA) | Sq. Ft. Range | Timeline |
|---|---|---|---|---|
| Garage Conversion | $80,000–$120,000 | $65,000–$100,000 | 400–600 sq ft | 3–4 months |
| Attached ADU | $150,000–$250,000 | $130,000–$220,000 | 600–1,000 sq ft | 5–8 months |
| Detached ADU | $200,000–$350,000 | $175,000–$300,000 | 600–1,200 sq ft | 6–10 months |
| Prefab/Modular ADU | $120,000–$200,000 | $100,000–$180,000 | 400–800 sq ft | 2–4 months |
| Feature | Conventional Cash-Out | FHA Cash-Out | HELOC Alternative |
|---|---|---|---|
| Max LTV | 80% | 85% | 90% CLTV |
| Min Credit Score | 620 | 580 | 680 |
| Rate Range (Feb 2026) | 6.25–7.00% | 5.875–6.50% | 7.50–9.00% variable |
| Disbursement | Lump sum at closing | Lump sum at closing | Draw as needed |
| Best For | Large equity, fixed rate | Lower credit, higher LTV | Smaller projects, flexibility |
| Region | Studio/1-Bed | 2-Bed ADU | Avg. Vacancy | Annual Gross |
|---|---|---|---|---|
| Orange County, CA | $2,200–$2,800/mo | $2,800–$3,500/mo | 3–5% | $31,680–$40,320 |
| Los Angeles County, CA | $1,800–$2,500/mo | $2,500–$3,200/mo | 4–6% | $24,192–$36,864 |
| San Diego County, CA | $1,900–$2,600/mo | $2,600–$3,300/mo | 3–5% | $27,360–$37,620 |
| King County, WA | $1,700–$2,300/mo | $2,300–$3,000/mo | 3–5% | $24,480–$34,200 |
| San Francisco, CA | $2,500–$3,200/mo | $3,200–$4,000/mo | 4–6% | $33,600–$46,080 |
Cash-Out ADU ROI Calculator
Educational estimate only. Actual costs, rents, and financing terms vary. Consult a licensed contractor and mortgage broker for project-specific analysis.
Related Resources
Get it sent to you
Share a few details and I will send your personalized summary and next steps.
ADU Financing FAQ
Can I use a cash-out refinance to build an ADU in California?
Yes. California homeowners with sufficient equity use cash-out refinancing to fund ADU construction at mortgage rates (6.0-7.0%), which is significantly lower than construction loan rates (8-12%). Under SB 9, every single-family lot in California qualifies for ADU construction regardless of local zoning. You need at least 20% equity remaining after the cash-out to qualify for conventional financing.
How long does it take to break even on an ADU investment?
Most homeowners in high-demand California and Washington markets break even in 5 to 8 years on ADU construction financed through cash-out refinance. The break-even timeline depends on construction cost, monthly rental income, and the interest rate on your refinance. In Orange County, a $200,000 detached ADU renting at $2,800/month generates approximately $33,600 annually, reaching break-even around year 6.
Does building an ADU increase my property value?
A permitted ADU adds 15-25% to property value in California and Washington markets. In Orange County, where the median home price exceeds $1.1 million, a well-built ADU adds $165,000 to $275,000 in appraised value. Appraisers factor in the rental income stream, the additional square footage, and the growing buyer preference for properties with income-generating units.
Is a HELOC or cash-out refinance better for funding an ADU?
Cash-out refinance is the stronger choice for ADU projects over $100,000 because it delivers a lump sum at a fixed rate (6.25-7.00% in February 2026), giving you predictable payments and enough capital upfront to pay contractors. A HELOC works better for smaller garage conversions under $100,000 where you draw funds in stages. If you hold a first mortgage below 5%, a HELOC preserves that low rate while adding a second lien for the ADU build.
Have questions about ADU financing? Call Mo at (949) 822-9662 · NMLS #1426884 · Lumin Lending NMLS #2716106