Turning a residential multifamily into a commercial multifamily

11 Replies

Hello everyone! 

I have a question regarding the process of turning a 4 unit into a 5 or 6 unit house by utilizing the unused 3rd floor. I am currently looking at a property, still the early stages and may not work out, but it raised a good question. It is currently a 4 unit, 2 units on each floor, and after my initial walk through of the property I noticed a HUGE unused attic that can convert into one if not two additional units.  Other than the cost associated with turning a gutted attic into livable space, what other issues may come up? I was curious about the process of having to switch a property from a 1-4 residential to a commercial property, or even other things to consider.  

This property will cash flow great for me regardless of if I add the additional units but it would definitely sweeten the deal. 

Any insight would be greatly appreciated! 

Thanks

That's a really good question Alexander... One I'd like to know the answer to also! I don't see why there should be too many problems with doing something like that except for maybe consider checking with your building department and local zoning if a commercial property is allowed in that particular area that you're residential property currently sits? 

That's something I had to check with when I converted a single family property into a duplex

@Peter Fennig You bring up a good point! I will look into that for sure. I just can not think of anything that would be different. One difference is how the property is valued since it will no longer be valued from comps. I am interested to see if anyone comes up with anything else.

Thanks again for your input. 

@Alexander Wardell That's a great idea. Thinking outside the box is how you get a leg up in this competitive multifamily market. 

Will the attic units have windows and exterior entrances? This is typically required by most local codes.

@Dan Handford yes the attic has 11 full size windows. The building has a flat roof also so the attic units would not look much different than the lower units. As of now the only egress is the front and rear door and the attic only has one door. I am guessing there will need to be an outside fire escape? 

Thanks! 

Any insight

  • All you're really doing is adding living space, just like a garage conversion or garage apartment.
  • Fundamentally this is prepositioning project, and is a solid strategy. The conversion from resi to comm + the added income could drive up the value dramatically.
  • Your only real hurdles (in terms of proceeding with production) are zoning and permitting. Clear both of them and you're good to go.
  • As far as zoning, you'll need to confirm required parking per unit based on available land. It's possible you may not have the land to meet the parking requirement for more units.
  • It's also a solid plan because you can finance under residential and get the better terms. Better yet, live in it and finance as primary, then proceed with the reposition.

You could be sitting on a gold mine.

@Alexander Wardell That's awesome that the attic already has 11 windows. You should be good from an egress stand point as long as you have it approved by the local city. I would ask @Brandon Abbott to chime in here since I know he has more experience on this side of things.

@Rob Haines I agree that the only hurdles here would be zoning and permitting. As long as the number work with the way it is now then there is no real need to rush this before closing since many municipalities are very slow on permitting as @Eduardo Rodriguez states. 

Definitely sitting on a gold mine if you can make this work.

@Boyd Coleman the lending will be complete before we would even consider finishing the space if all goes smooth but yes if we decide to complete the units before we refinance then yes funding would change. 

@Rob Haines Yes I am certain the added units would turn this already very profitable property into somewhere around 2k a month cash flow! I will ask about the zoning and permitting for sure. I am a little confused about the parking issue. Are you saying there needs to be a specific amount of parking on the property or does street parking count towards the requirements? The lots are small and there is no way I can get a spot for each unit on the property, even at four units this is next to impossible. I wish I could house hack this property but that is just not in the cards right now, or ever as my wife puts it. 

@Eduardo Rodriguez Yes this would be a slow moving process. Since the property is vacant we would look to get the other units fixed up and rented out. During that 2-3 month process would could look into the local zoning and planning and other requirements. This would be a hold property so time is definitely on our side, plus the property will cash flow 1k a month without the extra unit(s). Hopefully this next week goes smooth for us

@Dan Handford thanks for adding Brandon Abbott to this forum. I will keep an eye out for his input.

Thanks everyone!  

@Alexander Wardell

>Are you saying there needs to be a specific amount of parking on the property

Yes, a specific amount of parking per unit. Multifamily property zoning requires x parking spaces per unit, your zoning code will specify how many. Mine is 1.3/unit. A local engineer can help you determine if it's necessary and possible, and design your site plan to allow for the additional parking.

>does street parking count towards the requirements?

That's going to be specific to the local municipality. You'll need to ask the zoning office, but it's doubtful unless that's common in the area.

@Rob Haines Thank you for clarifying that for me.  It seems strange to me because the driveway on this particular property is single car width with maybe 2 spots around the back of the house. This set up would not be a good fit for 4-6 separate families driving different cars.  Seems they would just block each other in therefore causing more of an issue. The only reasonable solution would be to use street parking since it is a city.

I will definitely look into this though. Thanks for bringing it to my attention!