Reducing Unit Count to Loan Qualify?

[Austin Shute]

Hello all.

I am pursuing a deal in an excellent location in Providence RI with good cash flow potential.

It is a 2&1/2 story 5-family with 5 set separate meters and breakers. The layout is:

1st floor: (two) 2 bed 1 bath

2nd floor: (two) 2 bed 1 bath

Top floor: (one) 2 bed 1 bath “attic” w/ low ceilings

Trouble is, the building must be converted to a legal 4-family since 5 is commercial and does not qualify for my mortgage. 

Can someone give insight on how the 3rd floor could be made into storage so that it will pass inspection as a 4 family? Must a meter be disconnected or removed? How about the 5th bathroom?

[Anthony Thompson]

@Austin Shute if you intend it to be storage for the whole building, you'll need to figure out how to connect it to the common areas / hallway so all tenants can access it.

But usually what folks do in this situation is combine the top floor with the closest unit and make it a bigger unit (a "townhouse" unit), rather than using a top floor for storage for the whole building.

You might have to remove a door or two to connect the two units so the building inspector doesn't think you're going to keep renting the top floor as an illegal 5th unit, but as long as that's done I think you might be able to keep the bathroom up there. There's no law against having a second bathroom. It is a very good question for the building department though. For example, they may say the bathroom is fine but they don't want to see a separate kitchen there (I've had that happen in basements).

As far as the extra electric meter, the simplest thing would just be to explain to the now-townhouse unit tenant that it used to be two units, so there are two electric meters/bills and they'll just have to pay both of them. I don't think that would be the end of the world.

Another possibility would be to use that 5th meter as a house meter, but that would probably involve rewiring things to get the common areas and outside lights on that meter. Which, arguably, should be the case anyway, since in the current situation the common areas are paid for by at least one tenant, but if you're going to be living in one of the units and especially if you think the common areas would be on your meter, then you may not really care.

The gist of your question is really, what's "good enough to consider the building a 4-family", and that's a question you really need to pose to the Providence Building Department - ideally in person, if you can swing it. I find they're a lot more helpful in person than on the phone. But if it were me, I'd go the townhouse route rather than making the top floor storage.