Boost in value by turning duplex into triplex

5 Replies

I’m looking at a duplex that is somewhat unique and doesn’t seem too hard to add a 3rd unit to increase cash flow. The one unit has a walk up to the second floor that has a second full bath and a wet bar (sink, stove, fridge) so it already has the basics for an apartment along with a dining area. Those stairs would be easy to block off both units. The wet bar has a pretty decent island already. The building has 3 furnaces as well.

If zoning were possible to allow for the 3rd unit and appropriate updates were made how much value would it add if I were to refinance down the road. Obviously a lot is market dependent but in short I’m looking for people who have experience adding a unit to a duplex and seeing a change in value.

You already asked the critical question: Will zoning permit it?

Beyond that, it depends heavily on the increase in rent, and the market cap rate in your area.

Here is an oversimplified example:

Assuming properties tend to sell at a 5% cap rate in your market, and the property brings in $1000/mo (NOI) as a duplex, then your property is worth $240k.

If it brings in $1500/mo NOI as a triplex, now it is worth $360k.

Now compare that $120k delta to the cost of conversion, and you can figure out your ROI and whether it makes sense for you.

You'd also want to validate the value by looking at comparable sales of similar triplexes. But, if nothing else, you can figure out the value of the extra income to investors by looking at the cap rate and the NOI.

@Chelsea Knapp Make friends with the building department folks in your town and read the code. Knowing your zoning is a huge space for opportunities. Educated yourself in your specific area, there is lots to know and understand about zoning codes.

@Chelsea Knapp And also, can you separate utilities to each unit? How are the utilities now and is it permissible to get another power meter, gas line? Probably can't do separate water and sewer.

@Julie Marquez the two units currently have separate gas and electric meters right now. So the additional unit would need to be accounted for. Thanks for the insights. Bought a duplex at the end of March and the tenants cover my mortgage, taxes, and insurance and looking at next potential moves.