Thoughts in general? Architects?

Question

Hi, So I’m purchasing a single family dwelling currently 1850sf with a basement. It will be converted to a triplex the basement and fIrst floor one unit and 2 additional units above and will end up approximately 2100sf + basement. Purchase of $150k, $200k rehab budget. Should generate $4500 per month revenue with property taxes being about $500 per year with a 10 year abatement. ARV should be around $600k. Property is located in the Brewerytown section of Philadelphia. My architect is charging $9k which includes everything. However, a developer mentioned it would be a wise idea to do a condo conversion even if I’m planning to keep the property. The architect says he will charge me an additional $1k per unit if I do a condo conversion because his insurance comp I considers condo higher risk. Is this normal?

Nik Moushon · Answer

I'm an architect. Condos have the highest amount of law suites of any field by a good margin, even more than medical suites. At least in dollar figures; not sure about sheer number. Not only does our professional insurance go up but so will yours, by a lot. This is because the odds of there being a law suite sky rocket. So yes this is very normal. And really a lot of architect plain out won't do condos even though they do large MF buildings because of this very reason. And its also very common for developers who build new condos to turn around and sell them within a couple years because they don't want to keep that kind of liability on their books. Plus once sold they dissolve the LLC that built it and then all the condo owners are out of luck when they want to sue, regardless if the reason is justified or not. So if the "owner" who built it isnt around anymore who do you think they target next? Yep, the architect and builders who conveniently, for them, dont get to change or dissolve their LLC or company after every new construction.Besides liability there also the problem of selling and zoning. Instead of selling a single triplex you are now selling 3 condos. Then you have to set up a condo association (HOA), your taxes are different, your insurance is different, etc. There are way too many things that are different from a condo than a traditional MF. Granted I know you can still treat it similar by you owning them and renting them so in the end there might not be that much different but would you really consider selling one off while you keep the other two? To sum it up I don't think a condo is worth the effort for only 3 units. Especially when its a conversion of a SFR like this situation. Stick with a traditional triplex and skip the extra head ache for no extra return.

Nik Moushon · Answer

Theres the problem right there. You have a developer that is use to thinking at a very large scale and not a three unit scale. He is use to the extra expense of doing a condo but the rewards are far greater and thus make sense in the end. He's not use to, at least any more, thinking on a micro scale in comparison. Nothing he said is technically wrong, its just not the best practice for the scale you are working at.I'm not saying he isnt smart or that you should find someone else to get advice from but I see this happen very often. Especially since I deal with it on a daily basis in my profession. Not all rules apply the same when you are changing scale in developments. This goes both ways. Thats why large companies have smaller per unit returns than smaller ones. It works for them because of scale but it would not work for the smaller company. I can't take the same logic I use to design a small 1200 sf SFR and apply it the a mansion that is 12,000 sf.

Jared W Smith · Answer

@Mayer M. I agree & concur with all of what @Nik Moushon said. It's not worth the headache. In my opinion, $1k additional per unit totaling $3k is rather low considering the additional liability the Architect will incur. I just learned about this with a new apartment build occurring by a colleague of mine. I spoke with an insurance agent about the required insurance minimums and he asked about what type of building it would be- rental or condo. We then went off into a conversation on the latter. He said as architect we are liable for a specific term upwards of 5-7 years after construction is complete. If the building is converted to condo in that time, the architect is still liable, however the big problem is they have now inherited a new owner which they never contracted with nor designed for. This is recipe for problems and unfortunately possible lawsuits over the smallest issue.

Jared W Smith · Answer

Kentucky vs NJ/Tri-state area.. Account Closed, 9k is reasonable to me for the work necessary (honestly I would charge more). This is not a typical reno with no occupancy change.

Account Closed · Answer

@Jared W Smith I am based in Kentucky now but am not from here. The bulk of my projects have been in major metropolitan areas so I am familiar with the differences in cost. @Mayer M. Note everyone else commenting is an architect by trade and no offense to them but architects tend to overvalue their work in my opinion. 20 years ago I had to pay for real architects and the price was justified but now with new tech and programs its a saturated industry and prices vary widely within a single market.I'm not here to tell you to fire your architect but it doesn't seem like you got several, if multiple bids at all. Instead of having us all guess if its in the right ballpark just send your scope of work to a few other architects and get some bids. If you like or don't like what you see you can still continue with your current architect.

Account Closed · Answer

You're spending $9,000 on an architect for a sfh? You are getting ripped off BAD.I've done complex projects on multifamily for half that price. For a sfh ALL IN it is 1-2k. Keep in mind you need to get several bids/quotes. Many architects have quoted me 50 grand for a project because they charge by the sq ft or it say it is "complex" and I ended up paying 10k for the same service. If I spent 10k on that project you really need to re-evaluate spending 9k on your sfh.

Garrett Sowle · Answer

@Mayer M., I've quoted a good number of architects in Philadelphia for a similar project. 9k Seems right in line with what I've seen if he includes everything.

Mayer M. · Answer

@Jared W Smith I agree

Stephen Kappre · Answer

@Mayer M. possibly @Robert Feinstein would be interested.

Mayer M. · Answer

@Nik Moushon The person who recommended does hundreds of properties a year in philly from large condo conversions to large MF new construction projects. I believe he has has north of 500 units in various stages at this very moment.