California recently passed SB 9, which allows the owners of single family homes in urban areas to “divide their lots into two and build up to three additional homes on them” (LA Times). This is going to be a fairly fast (2 minute read) primer to answer some of the most common question that will come up.

The question begged is “OK, but where do I get the money to do all of that?”

The easiest, most common, and most cost effective, source of capital for such projects is a cash out refinance with the intent of the net proceeds being to improve the property in question.

For many homeowners in California, due to the appreciation that picked up with the commencement of the pandemic, there is sufficient equity to do that based on the current value of the home as it currently sits. To figure out if this is applicable, first you need a pretty good idea of what your home is presently worth. We have a free A.I. tool to help with that.

Once you have an idea of what your home is worth, some ballpark math you can do is multiply that value by 75% and subtract your current mortgage balance, to figure out how much equity you could pull out of your home, for this project (or another project you might be considering). For example, if your home is worth about $1,500,000 and you owe $300,000, the math would look like this:

$1,500,000 * 75% – $300,000 = $825,000.

That 75% is the “loan to value,” or LTV. 75% is a very common LTV limit for cash out refinances. Some big banks will cap you at 60% or 65% LTV, but you certainly shouldn’t assume that is the only option available. We have some programs that go to much higher LTVs, 89.99% in some cases, but about 75% is a reasonable assumption that doesn’t come with any big sacrifices in terms of interest rate, fees, terms, etc. We would be happy to go over some of those options with you, and as a reminder we do not charge any consulting fees. We will be quick, and to the point!

That $825,000 figure from above, along with whatever you could bring in, would be your approximate budget for the project at-hand. And, due to all of this appreciation since the pandemic started, that will likely to do the trick for most people.

What we shared in this quick 2 minute article: