Would you buy a single family that was converted into a 5-plex??

Question

I'm considering purchasing a 5-plex in Blue Springs, MO (a very nice neighborhood near KC Metro) because the neighborhood and deal look great, but I still have quite a bit of concerns that are preventing me from making the leap. Mainly because it used to be a single family home, and it was converted ~10 years ago. Now it's a torn-down 5-plex and 4 of the units need rehab.

Numbers = $75k purchase price, $35k repairs, ARV = $180-200k . Minimum rent = $2500/mo after repairs.

Obviously the numbers are great, but the place is gutted, has no separate meters (since it used to be a single family), and doesn't necessarily look/feel like a small multi-family building (it looks more like a house, since thats what it used to be).

Everything is properly zoned to be a commercial 5-unit, and the neighborhood is A-/A .

What questions would you have to dive into before making a purchase like this???

Paul Bowers · Answer

Seems awfully cheap for a rehab budget.  I don't think I could do 5 full kitchens and baths for that, let alone all the other work it would take to split it into five units.

Matt Pritchard · Answer

@Mike D'Arrigo is right.  And the cost of splitting the utilities at that price point is something you just would not be able to recoup.

Mike D'Arrigo · Answer

@Rohan J. the deal breaker for me (and it's a big one) is that the utilities are not metered separately. You never want to be in that situation. Paying for 5 tenants utilities is just asking for trouble. Blue Springs is a good area but this sounds like the wrong deal to me.

Rohan J. · Answer

As a follow-up to everyone on this thread, I wanted to say thank you to all. I will not be purchasing this property without a much much more in-depth analysis... it's not as much as a slam dunk as I thought! :(

Rohan J. · Answer

@Matt Pritchard Thanks for the info man. Very helpful. I'm in Kansas City for the next month or so trying to find rentals, so lets definitely grab lunch. I'll PM you info.

Matt Pritchard · Answer

@Rohan J. that sounds a bit messy, to be honest.  What is the total square footage?  With it being gutted, you can ballpark estimate around $20 per sq ft for the renovations at rental grade.  That does not include separate meters, and those can be quite costly.

Deals are everywhere in KC.  I'd be happy to grab coffee/lunch sometime to chat about some options and ways to target those deals.

I would contact the city to double check the zoning.  I know KCMO, for instance, can be pretty picky on issuing special use permits for multi-family units.  Often SFR in residential neighborhoods needs special use permits to be used as multi-family in those neighborhoods.  Even if the zoning is R 2.5.

Thomas S. · Answer

I would not even consider buying unless 100% of utilities could be separated. Unless all utilities are put in individual tenants names the risk is too high.

Landlord must not have any, heat, gas, electric, water in their name.

Corina Eufinger · Answer

@Rohan J. Please do PM me.  I love talking about these kinds of things. :)

Would you buy a single family that was converted into a 5-plex??

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