Converting a 5,000 sq ft. office building to 3-4 apartments

Multi-Family and Apartment Investing
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Converting a 5,000 sq ft. office building to 3-4 apartments

Bob BevisPro Member
Rental Property Investor · NH · Member since 2019 · 12 posts · 3 votes

I've searched the forums but haven't quite found what I was looking for.  In this hot real estate market, it's been harder and harder to find good deals.  An opportunity recently came up that I'm excited about but it's a little outside of my normal buy and hold investments.  I'd be looking at acquiring a 5,000 sq ft building that consist of a single 2 bedroom apartment and about 4k sq ft of vacant dated office space and converting the office space into 3 additional apartments.  There are about 4 bathrooms in the office space, electric and lighting throughout, 3 heating systems (1 in the apt and 2 for the office space).

Today the zoning is commercial.  A couple of concerns come to mind that I need to figure out the answers to:  

1. Zoning - will the town grant the variance to convert the entire building to apartments.  (initial call into them suggest that it may not be a problem) 

2. Septic - the current owner doesn't know what is in place but I'm guessing it will need to be re-done or updated to support 4 total apartments.  

3. I'm thinking that I'll need to hire: Architect to analyze and design the best use options and building plans? Attorney to present the plans to the town board for zoning?  Contractor that can handle this type of renovation?

Rough numbers - I think I can pick this up for about 350k, I'm estimating about 150k in repairs/remodeling.  I should be able to get about $6,500+ in rents once it's done.

What else should I be thinking of?  I'd love to hear from anyone that's tackled this type of project before on their lessons learned.  Thanks.

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  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    4y

    @Bob Bevis I am curious where to take the money form for purchase and renovation?

    You said it is hard to find good deals. Can you share what kind of strategy and deals you are looking for, how you normally finance them and what short-term and long-term outcome and goals you aim to achieve?

    Sorry for answering your questions with questions but it appears to me that you are looking for a comparison of what this opportunity could be to what you would normally do. That's why some more info would be helpful.

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  • Bob BevisPro Member
    OP
    Rental Property Investor · NH · Member since 2019 · 12 posts · 3 votes
    4y

    @Axel Meierhoefer I'm more interested in understanding the steps in the process for taking on a project like this (converting from offices to apartments) and if there are things that I should be thinking of that I am not.  I normally buy properties and do conventional 30 year financing or a commercial loan amortized over 20 or 25 years.  It really depends on the deal/opportunity - 2-4 units or larger.  I have some private money lenders that I've partnered with before.   For this one, I'd likely use a commercial loan with a local bank.  They would probably fund 80% of the initial deal and provide a line of credit for 80% of the construction cost.  

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  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    4y

    @Bob Bevis OK, got it

    I don't have much experience with this because I normally do what you describe in 1-4 units. One thing when I once looked into a deal like that that ultimately killed it was these two things:

    1. The property boundaries were such that I could not easily solve any septic issue or find any way to connect to city sewer. Technically it would have been possible but the cost was astronomical.

    2. The attempt to convert the zoning invoked a ton of rules that don't seem to apply for office, like parking, distance to adjacent buildings, rights for neighboring businesses, etc. and when I tried to find ways to mitigate, they existed but again costs too much.

    Overall it initially appeared like a no-brainer but I made the mistake of only focusing on what I knew, meaning the reno and renting it, and having plumbing to create bathrooms and kitchens, and enough amps for electrical, and maybe splitting meters for utilities, but that other stuff that converts from commercial office to residential was a very strange, all unfamiliar and would have been very expensive.

    Might not be the case in your deal but probably worth checking out

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  • Mike Smith
    Boise, ID · Member since 2018 · 203 posts · 188 votes
    4y

    @Bob Bevis I'm only answering your question as it pertains to a zoning change.  I sit on a small city P&Z board and also attend many city council meetings where zoning change requests are heard.  I feel that unless you are deathly afraid of talking in front of people, hiring an attorney to present a zone change request is way overkill.  Have your architect draw up some prelim conceptual plans and any documents required for the zone change application.  Turn in the application and make the presentation yourself.  Your architect can probably give you some good talking points.  You are wasting time and money on an attorney to make a 10-20 minute presentation to a Planning & Zoning Board and City Council.

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