Turning an old mansion into rental units? Good idea?
Homeowner · Walla Walla, WA · Member since 2010 · 82 posts · 21 votes
I'm contemplating the following deal but am still unsure. Could y'all give me your opinions please?
5 bed 4 bath 2 story home full split level basement ( finished) attic 3 living rooms 1 sunroom 2 laundry rooms Sitting on 1.75 acres with single car garage and two vacant lots attached selling for 350k.
I was thinking I could turn it into a rental and convert the rooms into individual units, and turn one vacant lot into a "playground" and the other into a mini garden that the tenants could use.
The only reason I'm at a loss is bc I'm still not sure if 350k is a good deal or not with the current economy. It was appraised at 500k in 2006 and is being sold by the family of the owner who recently passed away.
What do you think??
thanks!
Here we go....
If you are going to make this conversion (and you want to do it right) you are going to want to chheck with your city to see what upgrades you may have to do. this can be costly....but very possible. My question is...have you thought about the cash outlay this may require?
As far as the comps go...2006 will not matter. Different market...different prices. As a matter of fact, when people use the ole..."Well in 200X it was worth X", it's usually because they know the value has dropped...often times pretty significantly..especially in the higher priced properties. Now there is a possibility this is not the case at all for your property. Just make sure to get recent comps.
'
If you are getting a loan, the bank will make sure it will appraise anyway.
Now here is the VERY IMPORTANT thing...
when you take it from a residential property you will using the Comps or comparable approach to determine the value...so if the other "mansions" of similar size are selling for 500K...then arguably yours is worth 500K etc.
When you convert this bad boy....you will be using the Income approach to determine the value of the property. So you want to make sure you aren't going to decrease the value by doing the conversion. You can google the income approach...or I may have written about it on my blog. I am not sure...either way, learn about it!
Lastly, there is a saying in this industry..."What's it worth is not the same as What's it worth to me?".
The reason I mention this is because if you are making this investment...it should be for a purpose....to keep in allignment with a goal of some sort....a step towards an end in mind. So for example if your goal is 10K/mo cash flow from properties and the purchase and conversion will allow you to achieve this...then your answer is obvious.
Here is another example: Your goal may be to pull outa quick 200K and still cashflow the property 5K and maybe you can accomplish this by buying it for 500K using the comparable approach; however, after you do the conversion you refinance it using the income approach and it's worth 1M and you get a loan for 700K. Now you paid off the original note for 500K...made 200K and hopefully the expenses are lower than the income so that you have your cashflow.
I AM NOT SAYING YOU CAN DO THIS WITH YOUR PROPERTY
becasue I do not know your numbers; however, these things are possible if your numbers work. Run the numbers and weigh your options!
Hope that helped!
Amigos,
Mark
If this is a 5 bed property and you covert all the beds into units you run into the commercial route and have to deal with the zoning commission.
A hundred years ago, (more or less, lol) my first apartment was exactly similar to that. My landlord owned 4 very large houses in the city, in a rectangle, I suppose. I was young and didn't care. Two mansions were empty. He had converted one, a 3 story brick building into either 5 or 6 apartments:one in the basement his caretaker lived in, one on the first floor, 2 on the second (I lived in the front one) and 2 on the 3rd floor. Mine was huge. Huge rooms, living room, bath, kitchen, one bedroom. The other one on the second floor was not as large. The front one on the third floor was as large as mine,
He and his girlfriend lived in the very large house behind that building. It had been servants quarters and several car garage. The other two were being cleaned out to be remodeled into similar status--several apartments each.
That was a long time ago, in New Jersey.
No reason it can't be done now, probably...
Oh geez i didn't even think about zoning! Thanks for that tip.
In the surrounding neighborhood, it is common practice to turn old mansions into rentals, so i will check that out.
Ofgift: I had read that mansion conversions is common practice on the eastern side of the country and it's good to know that's true. Thank you for sharing!
I also believe, but do not know for sure, that anything more than four units will require commercial lending, as well. Someone should correct me if I am wrong.
Do you have an idea of what the conversion would cost? How many kitchens would you have to add? How were you planning on financing that deal? What would the apartments rent for? Could you take in $4500-5000 a month in gross rents?
I'll also add that 2006 was a long time ago. Have any recent comps?
Do you have an idea of what the conversion would cost? How many kitchens would you have to add? How were you planning on financing that deal? What would the apartments rent for? Could you take in $4500-5000 a month in gross rents?
I'll also add that 2006 was a long time ago. Have any recent comps?
5 units on up are classified as commercial.
Here we go....
If you are going to make this conversion (and you want to do it right) you are going to want to chheck with your city to see what upgrades you may have to do. this can be costly....but very possible. My question is...have you thought about the cash outlay this may require?
As far as the comps go...2006 will not matter. Different market...different prices. As a matter of fact, when people use the ole..."Well in 200X it was worth X", it's usually because they know the value has dropped...often times pretty significantly..especially in the higher priced properties. Now there is a possibility this is not the case at all for your property. Just make sure to get recent comps.
'
If you are getting a loan, the bank will make sure it will appraise anyway.
Now here is the VERY IMPORTANT thing...
when you take it from a residential property you will using the Comps or comparable approach to determine the value...so if the other "mansions" of similar size are selling for 500K...then arguably yours is worth 500K etc.
When you convert this bad boy....you will be using the Income approach to determine the value of the property. So you want to make sure you aren't going to decrease the value by doing the conversion. You can google the income approach...or I may have written about it on my blog. I am not sure...either way, learn about it!
Lastly, there is a saying in this industry..."What's it worth is not the same as What's it worth to me?".
The reason I mention this is because if you are making this investment...it should be for a purpose....to keep in allignment with a goal of some sort....a step towards an end in mind. So for example if your goal is 10K/mo cash flow from properties and the purchase and conversion will allow you to achieve this...then your answer is obvious.
Here is another example: Your goal may be to pull outa quick 200K and still cashflow the property 5K and maybe you can accomplish this by buying it for 500K using the comparable approach; however, after you do the conversion you refinance it using the income approach and it's worth 1M and you get a loan for 700K. Now you paid off the original note for 500K...made 200K and hopefully the expenses are lower than the income so that you have your cashflow.
I AM NOT SAYING YOU CAN DO THIS WITH YOUR PROPERTY
becasue I do not know your numbers; however, these things are possible if your numbers work. Run the numbers and weigh your options!
Hope that helped!
Amigos,
Mark
Whoa that was a lot to take in but so helpful! I'm gathering all the information on converting the house into apartments. Turns out I do need a special permit... But that's no big deal. I'm not sure how much it would cost to add the extra walls needed to make proper apartments. The house was originally an Abby for the local catholic church so it would just be a matter of adding some walls and doors to make it livable. It's in great condition and just needs some TLC.
Thanks again for the input! Yall have saved me again!