Condo conversion on 4 unit FHA

[Sebastian E.]

I have a theoretical question that I wanted to run by the community. I am analyzing a 4-unit building in an up and coming area. The numbers pencil out fine as is but I wonder if down the line the condo market in this area picked up whether it would be possible to convert the apartment building into condos (they are all 2/2's) and then so lease options on the condos using my low FHA rate to arbitrage a higher rate on the note to the buyer.

I guess the first question is whether the condo conversion would trigger some sort of due on sale clause with that original mortgage. 

Does anyone have any thoughts on whether this is even feasible and if so whether it's a desirable strategy?

[Aaron Smith]

When you convert to condos using an FHA loan, at the end of the process, the bank needs to okay the condo conversion. Not sure how this would play out, and my brother and I will find out soon, as he is doing a 203k on a fourplex in DC and converting to condos. Probably the easiest way to go is to refinance into a commercial loan with 4 condos under one loan, and then if you want to sell one of the condos, they can issue a partial release, and just release one condo from the loan. I've talked to several commercial loan officers and that is what they have told me.