Newbie Question: keep duplex or turn into a 4-plex?

Question

Hi All! I am a newbie here and have an interesting situation.

Short version : Should I turn my duplex into a 4-plex?

Long version : I have a lot of history with this house.  I lived on one side of the duplex, as a renter, for 14 years before I finally purchased it.  I have seen a few tenants come and go.  This house is zoned for a 4 plex, but the previous owner was not interested in capitalizing, so he turned it back into a duplex.

When I first moved in, the south unit was two separate 2/1 apartments with the upstairs tenants having control of the 1 car garage; they shared the yard and the laundry room.  My side was a 2/1 upstairs with an unfinished basement. It was owned by someone else.  It was purchased 1 1/2 years after I moved in and that owner turned the two south units into a 4/2.

We are currently in the process of beginning to finish our basement and bring it up to code as a possible rent-able unit.

The question is, should we turn it back into a 4-plex? The tenants previous to this had at least 11 people living in the 4/2 and the current family is 8, sometimes 9 or 10.  I am very tired of the extra large families living in this unit, and am concerned that it will be an ongoing problem, with a large unit.  3/2 and 4/2 in our area with similar square footage are going for $1850 - 2500. If we turn it into two units, we could easily get $1000 - 1300 for each unit.  They would have to split utilities unless we come up with another plan.

The "big but" is that the previous owner pulled out the downstairs kitchen.

I would love to hear thoughts, ideas and feedback.  I have some time, as it is currently rented.

Tess Tari · Answer

Thanks Gerrit, for the feedback.

1- I'm not too sure about actually doing this.  It's been an ongoing debate since we started talking about buying the property a few years ago.

2 - We are just beginning to do the remodel of the basement on our side, as we are still living in this side with the kids and dogs, and trying to get the renovation done while still living here and working full time.  Egress is #1 and that will be accomplished in a month - which will legally add the two bedrooms downstairs.

3 - The only major thing that has to be accomplished to turn the 4/2 into two 2/1s is the downstairs kitchen.  Cost will depend on what kind of finishes we decide on.

4 - Cash flow isn't really the game right this minute - it's more about mitigation of our costs.  Due to the inheritance of the previous landlord's non-capitalization, we have one large family that is paying WAY under market, but they are having trouble even doing that, so we may not have them for very long...  The cash flow won't come into play until we find our second property - the current goal is to live here for free(ish)

I agree with the difference in $, it doesn't make too much sense to do much work to the unit(s).  Limiting the amount of tenant is a definite, although local codes allow too many, especially if they're related....  This is one of my large concerns about the 4/2 size...

In all likelihood, we will keep the 4/2 & 4/2 combination, as the finishes and capex will be lower, allowing us to move out more quickly.

It's nice to have someone to bounce these thoughts off of!!!

Gerrit Stukkie · Answer

Hi Tess,

That's a good question, and I think it depends on a couple of things.

1) It sounds like you would like to make the change, which is a good start.

2) How along are you on finishing the basement and turning that into a rental?

3) How quickly can you convert the existing 4/2 into two 2/1s? What are you estimating for cost?

4) What is your cash flow situation? You could potentially be living without any renters depending on when you do the updates?

I guess my concern is this: Is this investment going to give me the most cash flow, or can I acquire a different property, and get more bang for my buck.  And, it may be worth changing the lease to limit number of people living in that space (assuming that's legal).

Also, going back and looking at the comps you just gave, it looks like you have only $100/month extra potential, which isn't much.  I'm leaning towards finishing the basement, and finding a different property (assuming that's an option).