I am looking at 2 identical 4-plexes on separate small plots next to each other. One 4-plex lot has an easment for the other. Separatley, I can't make the numbers work at the prices 4-plexes are selling in this area.
Is there any upside in combining the plots to create one 8-unit apartment complex? Is it possible? What is involved in doing that?
It seems that if combined, there could be the upside in reducing expenses (insurance, property taxes, etc.) and being able to add value to the bottom line, more so than as a 4-plex.
Anyone have expierience with this kind of thing?
The only upside I see just owning both of them so you can control the tenants and management of both.
Combing the parcels I think would limit your resale value because your now into commercial financing. I don't see how you can create more rent, more value to offset the cost of combing.
If you keep them on separate tax lots you can get a conventional loan on them instead of needing to go commercial. Resale may be better as well. We bought four duplexes that are on two tax lots. They function together as an eight-plex, shared parking lot, shared coin-op laundry, shared dumpster. Property taxes are per tax lot (2). Mortgage per tax lot (2). Insurance is per building (4). Water/Sewer one system with one water line into the property and one sewer line out to the city pipe on one account paid by us. Garbage/Recycling one account paid by us. One landscaping contract paid by us. Electric, Natural Gas and Telecommunications separate per unit paid by the tenant. We manage the property as one entity under one name. Works well for us!
Thanks for the responses guys! I realize the ease of conventional vs. commercial financing. I was wondering mainly from the standpoint of being able to add value based on pricing according to NOI as a commercial asset vs. pricing according to residential comps.
Also, I was looking at this as a 'creative way' to make the property work. For instance, as a single 4-plex it doesn't matter how high the rents go or how much I lower the expenses the price is going to be according to comps in the area. But, if it was a 8-plex the value of the building would be based on my NOI and not just on comps in the area. I was thinking that might be a way to make a deal work...
I was thinking that it also might be a way to lower utilities, taxes and insurance...but Marcia's comment about having separate insurance policies for each building is interesting as that would not save money.
If you combined more 4 plexes into maybe a 30 unit property I could see the value of reducing cost. 8 units doesn't seem like enough income to get to that point. We would have to dive into the #'s to know for sure.. I personally see in my area, fresno and tulare county, 4 unit properties trade at a premium, per door, over the 5-10 unit properties. Your pool of buyers are much larger, financing is much easier, appraisals are cheaper, the insurance is cheaper. A 4 unit property makes great resale because you can get a owner occupant buying...
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