203K 4 unit => Condo Conversion in Washington DC

[Joshua Smith]

Hi all - I am about to close on a 4 unit in Washington DC. The ARV of this building will be ~$1M; however, if I convert the units to condos, each condo would be worth about $315K ($1.26M). Would be great to get that $260K equity boost obviously, while still living in one of the condos.

The project is a 203K and I understand that it's possible to do a condo conversion if you have an FHA loan:

https://portal.hud.gov/hudportal/documents/huddoc?...

My question to all of you FHA experts is: if my bank has no idea how to help me get approved for a condo conversion, who do I approach? HUD themselves? What does that process look like? Any thoughts/feedback would be incredibly useful.

Thanks!

[Joshua Smith]

@B Ryans @Kevin DePass @Russell Brazil

-It took 8 months to get plans through DCRA

-It took 13 months of construction (with associated holding costs). Had liquidated damages clause (note: add this clause to ANY contract with a contractor; it will save you tons of money WHEN they go over allotted time).

-Went over budget by about $80K Biggest surprises were sprinkler (~11K for sprinklers + 9K for extra engineering + 3 months holding costs) and water/sewer lines. Usually those lines cost ~$50K in DC. I found a guy that did them for $25K. 

-I decided to convert to condos to get an equity bump. I avoided the 5% condo charge on outsale because i) I haven't sold them ii) If the units are proved to have been vacant for more than 1 year, you don't have to pay the fee. I had proof that ALL units were vacant for well over 1 year. 

-Cost of condo conversion was $7K for legal work, $500 for engineer's report and $2,500 for survey. Nothing close to what @Russell Brazil was saying. Orders of magnitude less that what he was saying. I recommend Tommy at District Title to perform the work.

-I rented the units out and am making ~$3K in cash flow per month and about $50K/year in interest deduction and depreciation. 

-Will rent this guy out for a very long time as I trust where the neighborhood is going. I will prune the equity moving forward with HELOCs or refis to invest elsewhere. 

Always happy to talk about any of the above to those wishing to do similar work.