FHA loan and adding Units to 4plex

[Tom Ashe]

Hi all,

I'm a first time real estate investor and I'm working on my first deal.  I was able to find this off market in a HCOL area, and it's providing a couple of very interesting value adds.

1) It comes with plans to add two new units within the existing structure on the bottom level.  Based on some contractor estimates, I believe I could get this done for under 150k, potentially under 100k (I have not seen the inside of that part of the property yet), and increase home value by approx 400k.

2) potential to split the lot, and sell the land separately (zoned as 3 story max multifamily).

My issue is regarding item 1.  My lender told me that the conversion of the property to a 6plex would cause me to need a commercial loan, but I haven't been able to discuss this with him yet.  My initial idea was to update, cash out refinance, and then have good cash flow and move to another deal, but the loan may be difficult to manage (I have a call with him later).

My question: Does anyone have experience converting a residential multifamily to a commercial? On a FHA loan? Any creative ways that I can avoid the 20% down payment and still get in here? I'm intending to owner occupy, but if the only option is to flip it, I'd consider that as well.

Thanks for your input!