Old duplex. Rehab and keep as two units or combine into a single family?

Question

Currently both sides are rented at a small surplus. Have about 65% equity and owe $200k. There are about 16 competing apartments within a small area, 6 of them were built less than 10 years ago and rent at a premium. Its a historic neighborhood so I am limited to what I can do on the outside. Fixed the foundation 6 years ago when I first bought it. Pretty much needs a down to the studs rehab. I'm estimating about $75k per unit. OR for the same $150k I could convert it into a single family and either rent or sell at a higher price.

Is this a bird in the hand type of thing or is there more opportunity to add value as a single family?

Michael Eskenasy · Answer

Mitch — I wouldn’t make this decision from the rehab cost alone. You’ve got enough equity here that the real question is which version of the property creates the strongest asset after the same roughly $150k goes in.

I’d want to compare the duplex as-rehabbed against the single-family conversion using actual local rent comps, sold comps, the historic restrictions, likely construction scope, and the value of giving up one legal unit.

My instinct is not to surrender the duplex configuration unless the single-family numbers clearly overwhelm it. Once two units become one, that flexibility is hard to get back.

If you want, I’d be happy to connect and work through the property with you. Send me the address and whatever numbers you already have and I’ll take a look at both paths.

Richard F. · Answer

As above, it depends. What is the actual age of the improvements? What, exactly, did you do to "fix" the foundation?

Generally, if it was built as a duplex, I would not convert to SFH, BUT, if you need/plan to replace entire electrical and plumbing systems, now would be the time to make the change for a more popular "open" concept SFH floorplan.

I would be most concerned about further foundation or structural member issues depending on your earlier work, and discovery of water or wood destroying insect damages behind the walls due to age/environment.

Tom Arrington · Answer

If it's truly zoned duplex (2 units) typically once you make it SFH you can't change it back. I would always keep 2 units if during rehab you can install a connecting door it is more versatile for renting. Multi-generational, in today's economy parents moving in with children or reverse!! Would that market be open to STR like travel nurse, corporate temp housing and my all-time favorite insurance company temp housing. They all pay quite a premium.

Jaron Walling · Answer

The correct answer is it depends.

Depends on the sold comps for SFH of equal quality and layout (ARV).

Depends on the estimated rent boost if you complete a less expensive remodel and keep as a duplex.

Depends on the direction of the neighborhood. If it's trendy and historic holding long term is probably the better play. If you have looming capex in the pipeline like a roof, HVAC, electrical issues, old windows, etc. that could change the equation. As LTR there's only so much "lifting" you can do for it make sense. You already tackled a foundation issue 6 years ago. Assuming that was very expensive I'd be cautious about renovating and your estimated ROI.

The majority of capex repairs net 0% ROI as a rental. Tenants don't care. As a flip it's everything especially in this market. Inventory is up about 20% in my market. Assuming the same in yours a flip has to stand out and be priced correctly. There's no tail winds right now. The Iran war, tariffs, and midterm elections destroyed it. Cheers.