is 3400 sqft too big?

Question

Hey BP,  My wife and I are looking at a REO that is a beautiful Victorian house that somehow has managed to remain a SFR.  I of course have to convince the bank to sell it 50k lower than they have it listed for, but I'm wondering if it is too big for a SFR investment property.

I haven't toured the house yet, but I think it also could easily be adapted to a multifamily with an exterior stair access or perhaps an interior one, but have to look at it  However, it is also in a real nice neighborhood of old SFR just like it, so I'm hard pressed to want to ruin the outside appearance with a stair case.

Sooo...

First question - is a three story, 4 bedroom, 3500 sgft house too big to successfully rent in the SFR market?

and

Any thoughts on the math on converting a SFR to a MFR and ensure the numbers would work?  I'm thinking anilizing it a bit of a hybrid and looking at it with just reno cost in the front end, but multifamily unit for potential cash flow on the back end?

David Wolber · Answer

@Amit Kal It's got a 1.8 mile walk to Ocean Beach and in a more desirable area near a hospital.  That's about it. :(

Perhaps an AirB&B rental??

David Wolber · Answer

@Jamie Engledow It just seems like most houses around here are around 2000sqft at best.  I am worried the large area might be hard to land a tenant that is willing to take on the utilities of such a large place.

David Wolber · Answer

@James C. Great call on zoning!!  I didn't even think of that.  It's zoned R-1, so single family only.  So I guess unless I would want to go and try to get it re-zoned, SFR it is!  There are several MFR up the street two blocks so it's obviously not impossible, but may not be worth the headache.

Also, thank you for all the advice for the analysis and rehab costs.  But I disagree, fire and gasoline is a lot of fun... :)

Jamie Engledow · Answer

No.  Why would it be too big?. There are lots of large families looking for 4 and 5 bedroom houses.   Compare to other 4 bedroom rentals  with similar square footage in the area.  If the numbers work, go for it!

James C. · Answer

David,

First things first. Is it zoned for MF? If not, you have a couple of options: Condo it, or SFR.

If it's a Victorian, you may be able to use the back (servant's ) staircase as a second means of egress, so you wouldn't need a ugly outside staircase. This approach is dependent on zoning/code enforcement saying it's acceptable.

As far as your numbers - apples to apples... if you do it as a MF, then your renovation costs are the MF costs, and the analysis is as a MF property.. If you do it as a SFR, then it's the SFR costs vs SFR income. Don't mix the two, it's like fire and gasoline, not good.

If you decide to go MF, you would need to consult a contractor familiar with the city code enforcement folks to advise you on the costs for conversion. If you want a zoning change/amendment, then you are in for an attorney as well. If you just do the SFR, then there isn't much that needs to be done in terms of code enforcement (depending on the level of rehab, they may specify new wiring and plumbing). That could be done by any competent contractor. If it's light rehab (paint, paper, minor stuff) then you probably don't even need to pull permits.

As far as if it's too big... I doubt it... it might take finding the right folks to rent it, but if it cash flows, let it cash flow away.

For turning it into condos... that would be an architect, builder, attorney to get that to happen. Folks I know that have done condo conversions have done quite well. If you convert it, then you can own them all and rent them out... so lets say you make your Victorian into 3 to 4 condos. You now have a defacto multi-unit property. A bit more involved, for sure, but again, if it cash flows...

Good Luck,

Jim