Loan Purpose
Mortgage Vintage funded a $735,000 business-purpose second trust deed loan secured by an owner-occupied multifamily triplex property in the North Park neighborhood of San Diego, California. The loan proceeds were used to complete construction of four permitted accessory dwelling units and required solar improvements at the existing triplex, expanding the property from a three-unit asset into a seven-unit residential income property. The loan was structured with full funds control and was supported by an approved feasibility study confirming that the $735,000 budget was sufficient to complete the planned scope of work. Upon stabilization, the borrowers intended to either sell the completed asset or refinance into long-term debt-service-coverage-ratio financing. This transaction was originated as a business-purpose cash-out hard money loan, a program Mortgage Vintage has used to help investors unlock equity and fund value-add construction projects throughout California.
Why This San Diego ADU Loan Stood Out
- Borrowers presented credit scores ranging from 787 to 805, combined annual income of approximately $365,000, and liquidity exceeding $310,000, reflecting a strong overall credit profile for a second lien construction transaction.
- The project involved four fully permitted ADU units rather than speculative ground-up development, reducing entitlement risk and providing a clearly defined path to project completion.
- An independent appraisal supported an as-completed value of $3,240,000 against total combined debt of approximately $1.815 million, producing a conservative 56.72% combined loan-to-value ratio and meaningful equity cushion for investors.
- North Park is one of San Diego’s most established and in-demand rental submarkets, providing strong fundamentals for both the lease-up and exit strategies contemplated by the borrowers.
- Multiple exit strategies were available, including sale of the stabilized seven-unit asset or refinance into conventional DSCR financing, reducing the risk of a single-path repayment dependency.
- Fractional beneficial interests in this San Diego ADU loan were offered to accredited investors through the CrowdTrustDeed platform, providing access to a secured, yield-generating real estate debt investment.
Property Description
The collateral property was a proposed seven-unit multifamily asset situated on a 6,409-square-foot R-2 zoned lot in the North Park neighborhood of San Diego. The existing structure, originally constructed in 1939, comprised a 1,692-square-foot multifamily building. A proposed 1,927-square-foot addition was to contain the four new permitted ADU units, bringing total rentable area to approximately 3,619 square feet upon completion. An independent appraisal concluded an as-is value of $2,300,000 and an as-completed value of $3,240,000. The existing first mortgage carried a balance of approximately $1.08 million, and combined with the Mortgage Vintage second trust deed of $735,000, total debt at origination was approximately $1.815 million, representing 56.72% of the appraised as-completed value and a net CLTV of 55.28%.
Investment Summary
This completed transaction was structured as a fractional second trust deed investment offered to accredited investors. The loan was written at an 11.50% borrower rate with an 18-month term, six months of guaranteed interest, and a three-month prepayment interest provision. The minimum investment was $36,750. Investors acquired pro-rata fractional beneficial interests in the trust deed, with principal and interest distributed accordingly. The loan was fully funded and has since been marked complete by Mortgage Vintage.
Financial Details
| Field | Value |
|---|---|
| Loan Amount | $735,000 |
| Lien Position | 2nd Trust Deed |
| Borrower Interest Rate | 11.50% |
| Loan Term | 18 Months |
| Guaranteed Interest | 6 Months |
| Prepayment Interest | 3 Months |
| Minimum Investment | $36,750 |
| CLTV (As-Completed) | 56.72% |
| Net CLTV | 55.28% |
| Existing First Mortgage Balance | ~$1,080,000 |
| Total Combined Debt | ~$1,815,000 |
| Deal Type | Cash-Out / ADU Construction |
| Occupancy | Owner-Occupied |
| Loan Status | Completed |
Property Highlights
| Field | Value |
|---|---|
| Property Type | Multifamily / ADU Construction |
| Location | North Park, San Diego, CA |
| Zoning | R-2 |
| Lot Size | 6,409 SF (0.15 Acres) |
| Existing Structure (Year Built) | 1939 |
| Existing Building Size | 1,692 SF |
| Proposed Addition | 1,927 SF (4 ADU Units) |
| Total Rentable Area (At Completion) | ~3,619 SF |
| Total Units (At Completion) | 7 Units (Triplex + 4 ADUs) |
| Appraised As-Is Value | $2,300,000 |
| Appraised As-Completed Value | $3,240,000 |
| Borrower Credit Scores | 787–805 |
| Combined Annual Income | ~$365,000 |
| Combined Liquidity | ~$310,000 |
| Exit Strategy | Sale or DSCR Refinance Upon Stabilization |
Frequently Asked Questions
Why would a borrower with credit scores of 787–805 choose a hard money second trust deed instead of conventional financing for ADU construction?
Conventional lenders typically do not offer construction financing against existing multifamily properties in the form of a cash-out second lien, particularly for ADU additions. Hard money lenders like Mortgage Vintage are able to underwrite to the as-completed value of the property, structure funds control to manage construction disbursements, and close on a timeline that aligns with active construction projects. For value-add investors, this flexibility often outweighs the higher rate, especially when the exit plan includes a refinance into lower-cost DSCR debt once the property is stabilized and generating income.
What does funds control mean in an ADU construction loan, and how does it protect investors?
Funds control is a disbursement mechanism in which loan proceeds are held by a neutral third party and released incrementally as verified construction milestones are completed. Rather than advancing the full loan amount at closing, funds are drawn down in stages tied to inspected progress. This structure reduces the risk that loan proceeds are misused or that construction stalls prematurely, which is particularly important for trust deed investors in a second lien position. In this transaction, the full $735,000 was placed under funds control and supported by an approved feasibility study confirming the budget was sufficient to complete the planned scope of work.
How does North Park’s rental market support the investment thesis for this San Diego ADU loan?
North Park is one of San Diego’s most consistently in-demand urban neighborhoods, characterized by strong renter demographics, walkable amenities, and limited new supply of small multifamily product. For a seven-unit property created through ADU additions to an existing triplex, the neighborhood’s depth of rental demand supports both lease-up velocity and long-term occupancy. These market fundamentals also underpin the as-completed appraisal value and strengthen the viability of a DSCR refinance exit, since institutional lenders underwriting to income will look favorably on stabilized rents in a proven submarket.
Mortgage Vintage, Inc. is a California Department of Real Estate licensed hard money lender and trust deed investment company with extensive experience structuring, underwriting, and servicing secured real estate debt across California’s diverse multifamily and residential investment markets. Our team has funded numerous ADU construction and cash-out trust deed transactions in San Diego County, applying rigorous collateral analysis and investor-first structuring principles built over years of active lending in the state’s most competitive markets.