Taking a six plex to an eight plex

[Sara Peak]

What says the group? I am about to close on a 6 plex. This is my first multi family. It's a great cap rate, good income, there's a maintenance guy already in place that wants to accept work, so overall, I feel like it's a great first multi family for me. 

Downstairs, there are two huge areas that are not being utilized well, IMO. One is a huge laundry room with only one washer and one dryer. The other is storage, that the last landlord is allowing people to use for free. I think there's great opportunity to turn those areas into two extra units, making the 6 plex into 8. There's another storage unit not being used that I could then put the laundry in.

Basically, I just wanted to walk through my plan and see what I'm missing/not considering, etc to make this 6 plex into 8. I would appreciate any feedback from those who have done this before.

My plan is to get at least 3 bids from contractors. Ask them what it would cost to turn this space into something rentable. Will probably only fit a one bedroom (or studio) and each of them need windows cut out in the building. Will a contractor recommend a layout for the space?

I also will work on getting a building permit (right?) and plan to apply for an exemption on the parking rules or add another parking spot if necessary.

For financing: it sounds like my options would be to pay cash for the reno, find private money, or go to my bank that financed the loan to start with? Any suggestions here?

Assuming all goes well, I've calculated that it will add about $1200/mo in extra cash flow. From there, do I sell as an 8 plex? Refinance to get the cash out? Or just enjoy the extra income? My long term goal is to move to larger multi families, so i see this as an opportunity to improve the building, sell, and 1031 exchange to something larger.

Any advice, feedback on any part of this is welcomed and appreciated!!

[Marcia Maynard]

Code compliance is key. Find out first what it would take to do this. We haven't done a conversion, but we do have an 8-plex.  Is the building on one tax lot? Is the downstairs area below grade (basement) or above grade? Every sleeping room will need to have two forms of egress. Consider where your HVAC and ventilation /exhaust fans will go (for bath and kitchen).  Consider the noise factor between the ceiling of one unit and the floor of the one above. As you increase the density the other tenants will experience a loss... a loss of parking, a loss of storage, and more neighbors sharing common spaces, so there may be some push back there.