Single-to-Multifamily conversion in Rhode Island: Worth the cost?

Question

While multifamily homes are plentiful in RI's cities, a job opportunity I am considering would require that I live in a fairly rural area where there are almost none. I believe in the power of house hacking and want to start building my family's financial security through cost-efficient living. So I am considering finding a large single-family house and converting a portion into an apartment. Welcome thoughts/advice on the feasibility and cost of doing such a conversion.

Joshua T. · Answer

@Anthony Thompson Thank you for sharing your experience. I have no desire to run an AirBNB out of my home and illegal tenants are definitely not an option. Perhaps I will have to get creative to find off-market multis. Eviction lists might be a place to start.

Anthony Thompson · Answer

@Joshua T. in most cases renting out part of a single family to someone else wouldn’t be allowed by town zoning regulations.

There’s a limited exception for disabled and senior relatives of the owner, but renting part of a single family out to a stranger Is generally not allowed.

It’s possible you could AirBNB a room occasionally but the demand for that in a rural area might be small and you’d want to check with the town building department ahead of time as some towns have regulations regarding that.

If you were asking about legally converting a single family to a 2F, that would be an uphill battle and especially in a rural area I would not expect it to succeed.

If you were asking about doing it anyway even though it would be an illegal unit, I can think of at least three good reasons not to do that.

First, if your tenant every does anything to annoy a neighbor (very common, some would say inevitable), it’s very possible the neighbor will complain to the town. Then the town would issue you a fine and give you X days to comply (make it a regular SF again with no rental).

Second, if you ever had to evict the tenant (another almost inevitability in this business) you could have some serious issues in court. If the tenant went to legal aid they’d have a field day with you. I don’t know what the outcome would be but I know it wouldn’t be good. You owing all the rent you collected back to the tenant is one possibility.

Third, I’m not an attorney but my understanding is that if a tenant ever got hurt on your property in an illegal unit it would be very bad in terms of liability - and you probably wouldn’t be covered by insurance. So any judgment the tenant got could be on you personally.

I could go on but the basic idea is, don’t do it. Do people do it and get away with it? Yes, and if you want to take those chances then I wish you the best of luck. But it’s just not worth the risks to me.

Colleen F. · Answer

You know it all depends on what is allowed by the zoning of the property you consider like Anthony says. If the zoning allows a  two family,  a conversion might be possible but expensive to meet current code. In addition rural areas may not have as strong a rental demand as you might like.   If you have a big enough house renting rooms is an option but again demand might be limited. I have found that RI has a very short definition of "commute"   Not sure what area you are pursuing.

One option is to buy a property where land can be divided and add value by subdividing and building but right now with unemployment high that is a long term plan.

Anthony Thompson · Answer

@Joshua T. I realized that I didn’t address your main concern/motivation, building your family's financial security.

If I were in your position I would live in the smallest/cheapest SF I could buy (and the family could tolerate/live in :), maybe something with a fixer upper aspect so I could learn some rehab skills, and buy a multi-family Investment property as close as possible to rent out.

I realize that with your living in a rural area that might not be too close, so it’s suboptimal, but nonetheless that’s probably what I’d do in your situation.

I would generally recommend that over buying another SF close to you and renting that out, because the numbers don’t usually work out for buying a SF at market prices; those usually end up being cash flow negative just because of the high initial cost due to competing with owner occupants and thus driving up the prices.

You usually get more bang for your buck (lower price per unit) with a multi-family property, especially a 3F or 4F. You still have to watch your numbers these days, but chances are much better it will be cash flow positive at least. (With 2Fs there’s still an element of owner occupants driving up the price, though not as bad as for SFs of course.)

I would also say you could just wait for the rare MF in the rural area to pop up for sale or, even better, approach the few MF owners directly, but since you mentioned a job-related move I’m guessing you wouldn’t have the luxury of time to try either of those.

Single-to-Multifamily conversion in Rhode Island: Worth the cost?

Most Popular Reply