Build a quad with 4x2-br units or 8x1-br units

2 Replies

Hey BP Community!

I was hoping to get some advice on a deal I'm putting together with a flipper and the options we have moving forward.  Here's the background:  the flipper purchased a building which had operated as, and was built out as an 8x1-br unit apartment building, each apartment comprising approximately 550 sq ft.  It has since been abandoned and boarded up.  He is going to rehab the building and we have discussed the possibility of rebuilding it as a quad with 4x2-br units.  The going rent for a 1-br of that size is somewhere in the $650-$700 range, and $1050-$1100 for a 2-br.  The building is in a transitional area of town that is undergoing a lot of renovations.  At first glance, it seems like building it out as an 8-unit building would be more profitable.  My concerns lie in the quality/type of tenant 1-br units would attract vs. 2-br units, as well as the increased cost over time of appliances/etc.  I plan on holding the property long-term.  What would you do in this situation, and why?  Any and all input is appreciated!

4-plex gets you conventional financing.... 8-plex would be commercial. Not sure if that changes things for you. 

Thanks @Matt K. Cash flow wise, it still looks better to build it as an 8, even with shortened amortization and higher interest.  Another option I'm considering is trying to separate the parcel into two quads with separate tax IDs.  There is an identical building one street away that is zoned and taxed this way.  By doing this, I may be able to handle it as two transactions, both of which would be eligible for conventional financing.  

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