Financing an ADU

April 1, 2025

Financing ADUs: A Smart Strategy for Homeowners in San Diego County

Discover how San Diego County’s changing ADU regulations can create new income opportunities for homeowners—without tapping into savings.


San Diego County is undergoing significant changes to its Accessory Dwelling Unit (ADU) regulations in 2025 due to new state laws. These updates are aimed at increasing housing availability and making ADUs more accessible for homeowners. The key changes include:


  • More detached ADUs – Multifamily properties can now build up to eight detached ADUs.
  • Easier legalization – Unpermitted ADUs built before 2020 can now be approved.
  • Streamlined permitting – By 2026, local governments must simplify the ADU permitting process.
  • No owner-occupancy restrictions – ADUs can be rented out without requiring the owner to live on-site.
  • Conversion of non-habitable space – Up to 25% of existing multifamily units can be converted into ADUs.

The Growing Need for ADUs in San Diego County


The rising cost of living, expensive healthcare, and increasing home prices make it difficult for many homeowners to manage daily expenses. Nearly half of the households in San Diego County spend more than 30% of their income on housing costs. Moreover, the county faces a severe housing shortage, with estimates from the San Diego Housing Federation and the California Housing Partnership indicating a need for at least 134,500 additional homes for low-income renters.


To address this issue, San Diego County has set a target to build 171,685 new housing units by 2029, including 99,000 affordable units. As a result, many older homeowners with available space may consider adding an ADU to generate rental income.


The Cost of Building an ADU


The cost of constructing an ADU in San Diego County varies depending on size, design, and complexity. On average, ADU costs range between $180,000 and $300,000, with some projects reaching as high as $580,000 for larger or more intricate units. Given the substantial investment required, homeowners must explore financing options that allow them to generate income while preserving their savings.


Case Study: 


Financing an ADU For Senior Homeowners


Homeowners: Husband (76) and Wife (74)
Home Value: $850,000
Existing Mortgage: $80,000 (Monthly Payment: $850)
ADU Construction Cost: $220,000
Projected Rent from ADU: $2,500 per month


Option 1: Traditional Mortgage Refinance


One way to finance the ADU is by refinancing the existing mortgage to cover the construction costs.

  • The new loan includes the existing $80,000 balance plus the $220,000 construction cost.
  • Monthly mortgage payments increase, but the net rental income reduces to $1,800 per month after loan payments.
  • Homeowners’ monthly mortgage increases to $3,200 a month. 

Option 2: Use their Home Equity


Another option is utilizing a reverse mortgage to fund the ADU construction for homeowners above the age of 62, or age 55 if using a Jumbo Reverse Mortgage.


  • The reverse mortgage pays off the existing $80,000 mortgage.
  • The homeowners receive a line of credit of $272,000+, which they can use to cover the construction costs.
  • They only pay interest on the funds as it’s being withdrawn, once the ADU is completed No monthly mortgage payments are required, they must pay property taxes and homeowners insurance as long as they live in the home. 
  • Their total monthly spendable income has increased by eliminating their $850 mortgage payment and the $2,500 ADU rental to $3,350.
  • The ADU enhances the home's value by an estimated 15%, providing long-term financial security.

 

As San Diego County continues to face a housing shortage, ADUs present a valuable opportunity for homeowners to generate additional income while increasing property value. Financing an ADU requires careful planning, and homeowners should explore options such as refinancing or reverse mortgages to determine the best financial strategy for their needs.


Homeowners can create an additional revenue stream, reduce financial stress, and contribute to the much-needed housing supply in the region. If your client is considering adding an ADU to their property, Introduce them to Retirement In Reverse, your trusted referral partner.



Could This Strategy Benefit Your Clients? Let’s Find Out!

Do any of your clients fit this scenario? Retirement in Reverse would be happy to provide a customized, hypothetical scenario to help you assess if this strategy could be a valuable solution. Let’s explore how we can make it work for your clients!



Who would have ever thought you could use a reverse mortgage for this?

Today’s reverse mortgage is no longer the loan of last resort. It’s a flexible financial tool that can be used strategically for:

  • Charitable giving
  • Buy-sell agreements
  • Paying for long-term care or in-home support
  • Funding a business venture
  • Helping Grandkids Fund College Expense
  • Gift down payment to your Kids
  • Any many more….

It’s all about what the money costs. It’s just math.


Retirement In Reverse offers Objective, Competent Advice to help you make informative decisions for your clients.
Furthermore, we have 
No Conflict of Interest, as we do not sell Financial Product, nor enter into financial planning engagements. We share your commitment to your clients’ financial stability and quality of life.


September 3, 2025
Physical activity is important at any age, but the biggest benefits of staying active might come in your golden years. Engaging in regular physical activity is a critical component of healthy aging, promoting wellness, functional independence, and an overall better quality of life. Key Benefits of Physical Activity Improved Attitude and Mood Exercise can significantly enhance mental health, reducing symptoms of depression, anxiety, and stress. Physical activity releases endorphins, which act as natural mood lifters, helping to improve your overall outlook on life. Better Sleep Regular exercise helps regulate your sleep patterns, making it easier to fall asleep and stay asleep through the night. Quality sleep is crucial for overall health and well-being, especially as we age. Stress Reduction Physical activity is a great way to manage stress. Exercise reduces levels of the body's stress hormones, such as adrenaline and cortisol. It also stimulates the production of endorphins, chemicals in the brain that are natural painkillers and mood elevators. Enhanced Mental Health Regular physical activity can help manage mental health conditions such as depression and anxiety. Outdoor exercise, in particular, can provide the added benefits of sunlight, which aids in the absorption of calcium and helps prevent depression. Physical Health Benefits Cardiovascular Health Sustained exercise improves cardiovascular function, reduces heart rate, lowers blood pressure, and enhances circulation. This can prevent conditions like myocardial infarction and atherosclerosis, leading to a healthier heart and vascular system. Bone and Muscle Strength Weight-bearing exercises and strength training increase muscle mass and bone density, which is especially important for aging women at risk of osteoporosis. Regular activity can delay or decelerate bone loss, reducing the risk of fractures. Improved Flexibility and Balance Activities such as stretching, bending, and twisting help maintain flexibility and coordination, which are critical for preventing falls and maintaining independence. Weight Management Regular physical activity helps control weight by burning calories and increasing muscle mass. This is crucial for managing and preventing obesity, diabetes, and other chronic conditions. Designing an Effective Exercise Program For physical activity programs to be effective for older adults, they should be multidimensional, combining: Weight Training for Strength Aerobic Exercise for Endurance Calisthenics for Flexibility Despite the clear benefits, only about 71% of adults aged 65 and over participate in leisure-time physical activity, and only one-third achieve the recommended levels. Interventions to encourage a sedentary older adult to initiate physical activity, as well as those to help maintain it, are essential. Incorporating physical activity into daily life not only enhances physical health but also contributes significantly to mental wellness and quality of life. It is never too late to start reaping the benefits of a more active lifestyle. Always consult with a healthcare provider before beginning any new exercise program to ensure it is safe and appropriate for your health conditions. By embracing regular physical activity, older adults can look forward to a more vibrant, independent, and enjoyable life. Find a physical activity that you love doing and do it every day, soon it will become a healthy habit. Have fun:) Author: Kinga Wulczynska-Lauer Disclaimer: Retirement In Reverse is a mortgage company dedicated to serving older adults, financial planners, and wealth managers with a strong focus on education and informed decision-making. While we strive to provide helpful information on a variety of topics, we are not experts in all areas. That’s why we collaborate with a trusted network of professionals—including attorneys, tax advisors, and financial planners—to help connect you with the right expert based on your individual needs. The information provided in this article is for educational and illustrative purposes only. Before making any financial, legal, or lifestyle changes, we strongly recommend consulting with a qualified professional who can review your personal situation. If you are considering Reverse Mortgage, call Ted Lange at 760-753-1568 to learn more.
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