Converting SFR to Multi?

Question

Does anyone have any experience with converting SFR to a Multi?

My GC pointed out a unique strategy but will it work?

So I have been looking at 3 to 4 bedroom SFR because Multi's in the area are either scarce or wouldn't cash flow with an FHA.

My strategy would be to buy a SFR and put up a wall somewhere in the house to create two separate units. If the home is only 3 bedrooms I would most likely convert the garage into a 4th bedroom so that both units are 2/1s. Now if the garage is detached I would most likely just keep the house as is and create a 1/1 in the garage. That being said... what kind of zoning/permit issues would come up? If I plan to occupy one of the units anyway can I just rent out the other unit without permitting the other unit or how exactly does that work? Now on the back end (sell side) if the property is still classified a SFR could I try to just sell it to another investor at that point for all cash?

This would be done in Riverside, Ca just for the record. I will do some more research and see what zoning laws are.

Aaron K. · Answer

@Bosko Mijatovic Especially for a job like that you will want to pull permits, un-permitted additions absolutely destroy the value of a home in many circumstances not only do you lose the money you spent to do it but you can lose the cost to fix or revert the addition. Renovations to turn non- living space into living space are very expensive, as I mentioned earlier if you are willing to have roommates in a big house you will probably come out ahead. Before you continue down the modification path much further I'd get in touch with someone who specializes in garage conversions or ADUs and get an approximate price and timeline and run the numbers again, it seems like you may be underestimating the cost, time, and difficulty of a project like this.

Bosko Mijatovic · Answer

Makes sense, luckily our mortgage would be cheaper than our current rent. So that wouldn’t be an issue but what if we kept it as a SFR and just converted the garage into a unit. Is there a difference if we did it permitted or unpermitted if we plan on keeping it as a rental

Aaron K. · Answer

@Bosko Mijatovic it isn't necessarily difficult but it takes a while to work your way through the bureaucracy. While you are waiting you still have to make mortgage payments with no rent coming in. You also may have difficult getting a zoning change if the property is not zoned for multifamily, because unless you are bringing business to the area most municipalities see no reason to upset the neighbors of an SFR neighborhood by allowing a variance.

Bosko Mijatovic · Answer

Can you elaborate on this a little bit. Why is getting building permits so difficult here?

Aaron K. · Answer

@Bosko Mijatovic This is probably not the ideal strategy, permits in CA are a nightmare and if you don't do it right or try to do it cheap you will just destroy the value of your property. When you get down to a granular level you have to make room for and build a brand new kitchen which will be very expensive not to mention the rest of the rehab. When all is said and done I'd wager that employing this strategy would net even less than just buying a multi-unit to start with. Finding anything that cash flows with an FHA loan and you living there in So Cal is like finding the holy grail. You would probably be far better off buying something with a mother in law suite or buying a 5 bedroom near UCR and renting it to students by the room.

Sam Shueh · Answer

Zoning change status is required or it can be red -tagged.

Bosko Mijatovic · Answer

UPDATE: After doing some more research there is something called an ADU (Accessory Dwelling Unit) that should allow us to do this 2 unit strategy. Now one of the requirements is that one of the units needs to be owner occupied. If this is true, I'm not sure what our exit strategy would be on it. Maybe sell it to someone who will FHA it as well.

Converting SFR to Multi?

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