EquityChoice to Fund ADU

As housing costs continue to rise and urban areas become increasingly crowded, homeowners are seeking innovative ways to maximize their property’s potential. One such solution is the construction of an Accessory Dwelling Unit (ADU). ADUs, which include small standalone units, garage conversions, or additions to existing homes, offer a versatile and cost-effective way to enhance your living space, increase property value, and generate rental income. These compact yet fully functional living spaces can also serve as guest houses, in-law units, rental apartments, or even home offices, providing flexibility to meet a variety of needs.

But how do you finance such an ambitious project? This is where EquityChoice by Newfi Lending can help. EquityChoice is designed to make financing your ADU project straightforward and affordable. In the next section, we’ll explore the unique features of EquityChoice and why it stands out as a smart financing solution for your ADU construction.

What is EquityChoice and How Can it Help You Finance an ADU?

EquityChoice is a 2nd lien mortgage with no monthly payments that offers a below market interest rate in exchange for a portion of the future appreciation of your home. Furthermore, instead of requiring an appraisal to measure how much your home has appreciated at a future point in time, EquityChoice uses a Home Price Index to track the changes of single-family homes in your area, meaning you can prepay (partial or full) without an appraisal; and, any improvements or additions you make to your home won’t be considered in assessing your home price appreciation for your future loan payment.

Now, let’s consider an example of how this loan structure may offer a financial opportunity when it comes to financing and building an ADU:

  • Suppose you own a home valued at $1.5 million and plan to build an ADU on your property for $240k to earn some additional income by renting it out each month
  • Using EquityChoice, you take out $240k of home equity and owe no monthly payments for the next 10 years, while earning rent revenue each month from your ADU tenant
  • At loan maturity, or whenever you want to payoff, you will owe back the amount you borrowed, the interest that has accrued each month at 4.5%/4.839%APR*, and a shared appreciation amount determined by the cumulative change in the home price index, which excludes the added value of the ADU on your property

You can elect to use EquityChoice to reap economic benefits by deducting the accrued 4.5%/4.839%APR* interest on taxes without paying it in cash each year by recharacterizing the mortgage interest as investment interest expense. There may be some requirements for accounting for this properly so be sure to consult your tax professional for more information on interest recharacterization.

EquityChoice presents a financially savvy alternative to selling off your investments like stocks and bonds. By choosing EquityChoice, you can avoid the need to pull your assets from the market and pay taxes on capital gains, allowing your investments to continue growing. Let’s break it down with a hypothetical scenario:

  • Suppose you own a home valued at $1.5 million and plan to build a $240,000 ADU.
  • Without EquityChoice, you might turn to your stock portfolio, valued at 300,000 with $100,000 in capital gains. To net $240,000 after taxes, you’d need to sell approximately $262,000** in stocks.
  • Now, imagine if you left that $262,000 in the market, earning an average of 5% annually. Over 10 years, this investment could grow to $429,317, thanks to the power of compounding interest***.

By leveraging EquityChoice, you preserve your investment’s growth potential while accessing the funds needed for your home project. This approach not only supports your immediate goals but also secures your long-term financial health.

In conclusion, building an ADU is a smart and versatile way to enhance your property’s value and utility, offering solutions to the growing challenges of housing costs and urban density. By choosing EquityChoice from Newfi, you can finance your ADU project in a way that preserves your monthly cash flow and maximizes your investment earning potential. EquityChoice allows you to leverage home equity without the immediate burden of monthly payments, and it provides a tax-efficient, flexible financing option that supports both your short-term renovation goals and long-term financial growth. Embrace the potential of your property and secure your financial future with the innovative benefits of EquityChoice by contacting us today at (877) 676-3934 or emailing EquityChoice@Newfi.com.


*See terms and conditions that apply to any Shared Appreciation amounts your client may owe on the Newfi EquityChoice Loan at Newfi.com/Equitychoice.

**Assuming pro-rata capital gains and LTCG of 25%

***Assuming 5% return and semi-annual compounding.

Get Funds For Your ADU!