Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
Has anyone gone from 8 units to 4? Or 4 units to 2? I know it’s against the status quo but just a random late night though I had. What if we turned an 8 unit into a “luxury” 4 unit? Would a full gut rehab probably be the best option?
What about going as far as turning an 8 plex into a SFR?
@Steven Ko the concept you stumbled upon is called "highest and best use", and is one of the higher level strategies you will see people focus on once they are experienced at development. For instance, there may be a run down duplex on a huge lot and a developer can do better by scraping it and building a 12 unit. It is also possible that the run down duplex will make more money as a single family, and so it is de converted. This is happening all over Chicago right now as gentrification leads to all the affordable housing being converted to single family.
@Steven Ko - We're seeing that as in a historic district in one of our markets. Larger older homes were converted to multi's to support the growth of the local college, now the downtown area is coming back and new money is converting them back to SFR for resale. Typically these are properties that are in rough shape and have had the certificate of occupancy revoked. Bringing them up to code as a multi is cost prohibitive, but it works for a conversion back to residential.
It depends. On one hand, the per square foot rent will typically come down. Additionally, you are obviously shrinking the diversified nature of your revenue from 8 streams to four in this case.
on the other hand, if your demographic is such that larger units well see lower vacancy and economic loss, then this may make sense. Additionally, as a cash flow vehicle, you may be less concerned about per square foot rent and more concerned about per unit rent.
so the answer is oh, it depends on you and the market.
I've actually looked into this in both directions. I found a 50 unit in an upper scale neighborhood consisting of all 1/1's that could have higher rents and lower vacancies as a 25 unit of 2/2's. In that case the gross rent would stay the same but the vacancy would stay closer to 100% consistently.
In another situation I found a 44 in a college town that could be turned into an 80-90 unit by converting maint of the units to studios and 1/1's. The issue was the price was to high to justify the construction.
I think it's a fair strategy if it's research properly. If the numbers line up, there are some benefits to it. Just keep in mind that changing the number of units can hurt you in situations just as much as it can help you.