Down to studs Duplex to multiplex HELLP

[Miguel Toj]

OOOOOK. Brief background. I've flipped one house and am currently doing a full gut renovation on a 2/2 condo in the Houston Metropolitan area. I'm fully employed and do this on the side. I have decided to focus on long term buy and hold so most of my renovations involve full gut. I hit plumbing, electrical where necessary, foundation, roofing and HVAC. That said, after enough podcasts and reading and learning and mistakes, I've learned that bigger and more daring is the way to go. I spend my nights running numbers and burning out on how crazy this market has become! That said, I finally caught a break and have been presented with a unique opportunity and although I'm not overwhelmed yet (excited!)... I need some guidance. Bigger pockets tells me even maybe a partnership so that I can provide value for someone (if the numbers work) and at the very least, if not big profits, experience. That said, I certainly want to avoid any losses and so now I'm here.

Perhaps this gets outside of the realm of residential. I had this interesting scenario present itself to me.

I found a property that is down to studs. I would need to figure out the numbers worked, however, in order to do that. I needed to see how/if it is possible to structure a loan that would include renovation $. Would this be strictly depending on a sale price that is well below market so that the sale price + renovation costs end up being below appraised value? Or is there a way to leverage/finance the entire project. Purchase + reno, I’d say looking into the 1.2 million-1.5 million range.

The complicated part is that it is currently a 3/2 duplex, down to studs (will need a couple 100k in reno, close to new build). In order for it to work (numbers) I would have to go in and convert it to 4-6 smaller units by extending the structure a bit (space allows) and reframing to allow for multiple units. At the end it would no longer be a duplex. Alternatively, I was considering bridging the two units and converting it to a luxury family residence (neighborhood does hit million dollar homes) but not sure if the market will support the price tag (this part is easier, and I think the fact that the current owner who claims to be an investor himself yet hasn't made it work... this tells me it probably isn't favorable towards a flip). it definitely is not favorable as a duplex rental so the only way i see it working is to add doors. The location is excellent.

I can contribute ~$100k out of my own pocket but as any investor would like to keep as much of it out of the deal. Is this more of a private money situation? I’m also considering reaching out to an acquaintance who deals in commercial (essentially flips apartment complexes) if it dips into the commercial realm or a few other friends who have wanted to partner on deals. I’m currently working with a contractor who is finishing out the condo (that I completely ignored for a couple of months) but who deals in renovation, add-ons, new builds.

I guess to summarize. How complex can financing get when converting a duplex into a multiplex? Is it possible to finance this as an entire project, reno costs included? or is this better suited for a cash buyer that can avoid financing costs. I am employed and can support a $3000-4000/mo mortgage but i dont think i can support a million plus financing holding costs. I'm still stuck thinking in single family mortgages that base off personal income etc. I'm ready to take a dive and be comfortable being uncomfortable. Would a bank frown at my current mortgage (very low) or not consider it if it is being converted to a multiplex? At what point does it get into the realm of apartments? I did propose owner financing with incentives and was instantly shut down.

Thanks for any insight,

Miguel