Converting 7 Units into 8 Units

[Lethorn Irving II]

Hello everyone, so I found an off-market 7 Unit apartment building (seller financing) in the greater Lansing area in Michigan that is set up in a way that appears it can be converted into 8 units fairly easily. There are six 1bd units and one 2bd unit. The 2bd is 2 story unit that can be split in a way that would make the property look like 8 uniform units (Its a 2 story building with a 1 bedroom unit in each corner. I have never gone through the process of adding units to a property, but the property is in a really nice neighborhood. The subject property is the only eyesore on the street, it appears to need mostly just cosmetic interior/exterior upgrades, and it basically pencils out at 7 units-- with an 8-unit conversion it will allow a refinance of most or all of invested cash within 2 years. Does anyone have experience with similar projects? Would you invest in a project that depends on being able to split a unit into two? I have completed a bunch of SF flips and rented a couple of properties (SF and 4-unit properties) as well, however this current project is a new area for me. My vision for the property is clear (my strength), however I am lacking the commercial multifamily experience and deep pockets to jump in, so I'd love some help as I see good potential for this property. Any feedback is greatly appreciated.

[David Hall]

I would lock it up with a purchase contract contingent on you finding out if you can make the conversion.  Once under contract, you can freely contact the zoning and the building authorities to ask if they'll allow you to make the purposed changes.  If so, great!  Move forward on the purchase with seller financing, do the repairs and refinance with a commercial long-term loan.  If the City says no, you know ahead of time and can make the decision to move forward as a 7 unit or back out since you can't get your desired 8.

I also invest in Lansing MI.  I bought a 4 unit zoned as a 4 unit and the building department said they would no longer grandfather in the basement 4th unit since the rental license had lapsed.  Lucky for me it's still a great deal, but it's something to try to sort out BEFORE you buy.

Good luck, I'd love to see how it turns out for you!