converting 4plex to 5 units, what does this change

[Trevor Praetsch]

Hey folks! Considering an investment opportunity in NH, currently a quad with potential to convert a space into a fifth unit. Any advice on what to consider transitioning a small multi to large multi. What are some considerations in regard to refinancing/taxes etc. Multi's are a very new realm for me.

[James S.]

There are a lot of potential pitfalls to this strategy.

First, the zoning. It's very unlikely in NH that the home exists in a place that allows 5+ unit buildings, unless it's in a downtown commercial area. Most NH towns have, in general, four types of residential building types, SFH, 1-2 units, 2-4 units, and 5+. There is usually no overlap between places that allow 2-4 and 5+. If your home is in a zone that allows 2-4 units, it's usually unlikely you are even allowed to apply for a variance or special exception with the ZBA, and it's even less likely it will be granted.

Second, as other have mentioned, is financing. There is an entirely different world of rules for 5+ units, as that is the arbritary numebr someone decided on years ago making it a commerical building. You may be unwittingl violating rules of your mortgage that may trigger a due on sale clause, and you will most certainly need a different type of insurance regardless. Check with everybody about your plans before you start them.

Thirdly, and I would consult with an expert on this (so don't quote me as it's been a few years since I looked into this) adding units is generally considered a class three renovation in NH. This would mean that, per the state fire code, I believe you would have to add sprinklers to the building. The whole building. And that can be a very expensive task, and difficult to do with occupied buildings. Especially when you are bumping up into a commerical level of units, which have more stringent rules, the code will require sprinklers. Furthermore, even if code didn't require it, the fire chief is allowed to require it as a condition of granting the variance.

Do NOT rush into this deal if a) the deal ONLY works with the 5th units and b) you have not crossed every t and dotted every i Twice. Because if you make a mistake, it may cost you a lot of money to fix. Tread lightly and get answers in writing, and have them looked over by professionals, before you sign anything. Adding a unit is much more of a hassle than it feels like it should be, but doing your DD ahead of time will give you the most protection.