Mixed Use Property Conversion to Residential Worth it or not?

6 Replies

I am a new bigger Pockets member and a new investor. I have not closed on my first deal yet, but am looking to utilize the FHA loan to its best leverage and get a 4 unit for my first one. With that my mortgage person had told me that FHA allows a mixed property of commercial to residential, but the residential has to be at least 51% of the sq. ft to qualify the loan. With that I found a property where on the ground level are two commercial units and the second floor are two apartments. I would need to convert one of the commercial units to residential to qualify and since the area does not have a ton of rentals possibly convert the other as well. In total the building would then have an additional (4) units (each commercial would get an additional one bed as well as a two bed) so (6) all together.

My question is, is it worth converting with all of the updates that would have to take place such as getting the bottom units up to code, possible sprinkler system, etc. and the needed acceptance of an architectural plan drawing from the city? 

I am starting to lean towards the No as it seems like it would be alot of extra cost, but do not know and don't want to miss out on a possible deal by not knowing. 

Also, could anyone recommend a good contractor in the Milwaukee area that I could walk through the property with the get a guesstimate?

Thank you Bigger Pocket Nation!

I agree with NO. Stay away from changes to use, layout and inspections on your first deal or you'll quickly burn out. 

Find a nice dated four plex in a good area in need of cosmetics and start with a win.

Thank you guys for the advice. I'll keep plugging away waiting for something to come on the market.

Will you even be able to get an FHA loan if you convert it to 6 units? I know FHA is for 1-4 units owner occupied. I'm not sure about your situation but I would ask your lender

@Darren Budahn : I was going to get it under the FHA originally and only convert one commercial into a single dwelling and at a later date do the one bed and two bed in each unit. Do you know though, one thing i am confused on, is the four unit with an FHA only good on your first home? Meaning when i buy a property, with or without FHA, does FHA only offer the next loan with only a single family?

@Dominic Augustine

I'm no expert on FHA loans so i would talk to your lender or reach out to others here on BP.

However, my understanding is that you can only have on FHA loan at a time and it can be on any 1-4 unit owner occupied property. I do not think it matters if it's your first or tenth home purchase. For instance, you could buy a 4 unit with an FHA loan and live in it. Then, a few years down the road, assuming you had enough equity, you could refinance that FHA loan into a conventional loan and go buy another 1-4 unit property with another FHA loan. Hopefully that makes sense.

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