Is it worth converting my Brooklyn home into a two family?

Question

So I have a home in Brooklyn, NY that is worth a lot. A little over seven figures. It's a small home but I'm thinking of renovating the top two floors as a single unit. It would be a 3 Bedroom / 2 Bathroom will a parking space.

The cost of the renovation we're estimating as over $100K. The Architect we spoke to quoted us at $18K to get a certificate of occupancy fir the whole process up to the renovation being over with.

The mortgage were getting is an overestimation ($160K), so about $700 a month over 30 years. Is it worth it to do the renovation and get what I'm hoping to NET at least $1200 a month in rent from this conversion?

Keep in mind this is our first experiment, and we just want to get our feet wet with the whole process of renting it out.

Note:

1) We cannot renovate the house to more than two units because of zoning laws.

2) We're looking for a short term boost in rent to just feel that this whole thing renting this is possible.

3) We're looking for a scaling strategy to get as many properties as possible.

J.R. Coffin · Answer

Thats correct @Llewelyn A., ALT-1 Permit. And I totally agree, I'm not sure that it will increase the value of an already valuable one family. If its a buy and hold and your getting good returns/cashflowing, it shouldnt set you back but you should be clear what your long term goals are.

Llewelyn A. · Answer

@Mohammed Shahriar Rashid

@Jillian R. Wiedenmayer

I would not only calculate the increase in Cash Flow, but I would also do a search for comps related to single family and 2-unit buildings in your area.

There are a few things to think about.

Don't think that changing from a One to a Two Family building will increase your value. I have seen it go both ways with wealthier neighborhoods having ONE family to be just as expensive and sometimes more expensive than TWO family. Rich people wouldn't necessarily want to be a Landlord, therefore, you would really lose these potential buyers. I would not say that you will ALWAYS get a value increase with the change.

Second, the type of renovations you want will require you to pull an ALT-1 Permit: Permit's in NYC

However, Jillian can confirm that.

It is possible that a full tax re-assessment of your building will trigger paying higher taxes, which will blunt your calculated cash flow.

If you were not changing the Certificate of Occupancy, I would not have mentioned a tax re-assessment.

Those are a few things to think about and make sure you don't wind up spending a lot of money to make a change in the CofO only to wind up having the same Property Value AND having your potential income source blunted by increased property tax.

J.R. Coffin · Answer

Those numbers seem quite realistic. I would start by calculating your ROI and see if you money is best spent in construction or would be better someplace else.

I specialize in multi-family developments and definitely am a full proponent of doing a little bit of hard work not to have someone else pay for your mortgage later.

I was struct by Note#2 - if this is your first rental and you're unsure of the outcome. Have you thought about a phasing strategy? Like just building our the firewalls for your 2 units and AirBnBing the space. That way, you have little cash invest and if done right will be making a comparable amount (if not more) in rent. Also, if you're not into being a fulltime host- there are many people, including myself, that would be happy to manage the rental for you.

Is it worth converting my Brooklyn home into a two family?

3 Replies