4-Unit ---> 6-Unit Conversion... Good or Bad?

[Steve DellaPelle]

Hi All,

I am closing on a 4-unit property soon with an FHA loan. The attic used to be 2 additional units (one on each side) but suffered a small fire 30-some years ago. It is still in decent condition (structurally) but would require a full rehab.

If I have the potential to convert these back into 2 more units, which would give me a total of 6 units, should I do it? I know that this would bring me into the commercial side of things and I was wondering what the implications would be...tax-wise, FHA loan-wise, etc.

Thank you!!

[Paul Smythe]

@Steve DellaPelle if everything checks out and is approved I'd bet it would be a very good idea. You'd see a very nice bump in income.

One thing to consider, though. With the move from residential to commercial, the way your property value is calculated will be different. Instead of the comparables approach with residential you will move to the income approach for commercial. I'd be happy to help walk you through that separately if you'd like, but the methodology with which your value will be calculated is going to change. It'll most likely be a positive change, but that's not guaranteed.