Converting 4 Units to 6 Units Multifamily

[Joseph Matarazzo]

Hello BP Family,

I hope this is the correct spot in the forums to post this discussion. 

I have the opportunity to purchase a multifamily house in New Jersey. This property is unique because it is a 4+2. It is zoned as a 4 family. It has 4 units on floors 1-3, but it also has two areas in the basement which could make another two units (yes they have two means of egress, windows, tall enough ceilings, etc). 

The previous owner has began flipping this property. It was gutted, new electric, plumbing, insulation, drywall, floors, tile, some trim and doors, etc.  It still needs fixtures, outlets, lights, radiators, kitchen and bathrooms finished, appliances, and a bit of exterior work. All this work is on floors 1-3. As for the basements, one side its easy to see that it was once a unit but is in terrible shape. The other side is gutted to the studs with no improvements, but it does have a staircase to one of the units on the first floor as well. 

So I have run my numbers, and this property cash flows with 4 finished units, not including the basements (good!).  But... it would obviously cash flow a LOT if I could finish the additional two units. I understand going above 4 units means transitioning from residential multifamily to commercial multifamily. 

The Plan: buy the property with a FHA/203k loan. Renovate all 6 units. 4 units will be complete apartments. the basement units will be "finished spaces" without the essentials of making them legal units. Get the C/O and rent out the four units, then decide how to proceed further.

Questions:

- Has anyone ever done this conversion from residential to commercial multifamily? 

- I have a call in to the town's zoning department to ask what would be required, but any tips or things I should look out for? 

- How hard would it be to change the FHA/203k loan to a commercial loan later on?

Id really appreciate any and all advice on this topic. I have been searching but I cannot find many examples of people having done this.