building out a 4-plex to 5 or 6 units
I live in Raleigh NC with my wife. I've owned a quadplex for about a year and a half, fully rented and booking a little over 36k in revenue last year.
I financed my 4-plex with FHA. I manage it myself and there really isn't much I can't do - I live about two miles away and the only things I won't do is major construction or HVAC work. Expenses are relatively low, although the mortgage eats roughly 2/3s of the revenue. Renters are solid, one 8 year, one three year, one very good Section 8, and a new (14 months ago) that has done well so far.
One thing that separates my 4 from the others around it, aside from the fact that it's the most well built and kept up 4-unit in the area, is that it has a full basement, split down the middle, 1000 sf on each side, with 20 year old complete plans to build out two more apartments. At some point, someone did about 85 percent of the work to build out one of the two. It includes 2 BR 1BA, a 90% complete kitchen, large greatroom, and would require a separate HVAC (it is ducted and connected to the upstairs unit) separate water, and separate power. Three different contractors have quoted me about $10k to finish it out, and I could rent it for about $550. The other side is my shop - I'm not particularly interested in building it out from scratch right now.
I can get the building plans reapproved and repermited with the city, that's not a problem, I've already talked with them. Technically I'm listed in the city records as the owner-occupant because that was required with my FHA loan, but I don't live there anymore. This might be beneficial because if the city believes I'm an owner occupant, they're less strict about certain permits that would be required if it was listed as strictly commercial property. I need to know what is the process for adding this unit and turning the place from a 4 to a 5. The lender was well aware of this capability during financing, but since the max with FHA is 4 units, I don't know if you can build it to 5 (or 6) during the loan period. And with the city - are there zoning changes? What about reappraisal?
This is completely new to me and quite frankly I'm not sure where to start. The last thing I want to do is go off half cocked like a lot of folks do and find out two years from now I'm staring down a bunch of municipal fines (or worse) for not getting everything squared away.
Also, I'd like to drop PMI and save 2400 a year - but that would require a refi if I do it before 5 years without 25% equity.
A lot of you guys do this for a living and have a great deal of experience. I'm just getting wound up, but I plan on making a future and definitely a retirement out of rental property. I've got a lot more questions and such, but we'll stick with this one for now. Toss this situation around in your head and think about what you might do and toss it back my way.