Duplexing Options: Looking for Suggestions

[Drew Kelly]

Hello all! My wife and I purchased our first home one year ago in Lincoln Square.  It’s a two-flat with a 3BR, 1.5BA in our unit on the first floor, and a 3BR, 1BA on the 2nd floor which we rent out for $2300 per month.  The basement is unfinished, but is only about 3 feet below grade, and has front and rear entrances, full-size windows, and high ceilings (we would not need to dig out the basement when we finish it).  The second floor unit has its own laundry room, and the first floor unit uses the laundry in the basement.  The first floor has central air and forced air heat, while the second floor has steam radiators and no AC.

My wife and I plan to live here for many years, and would like to either (1) duplex the first floor unit down into the basement and keep the top floor as a rental unit; or (2) duplex the first floor up into the second floor unit and convert the basement into a rental unit (we believe it could be a 2-3BR, 1.5-2BA unit).  We understand that Option 1 would provide higher rental income than Option 2, but we are planning to live here for at least 10 years, and would prefer to live on the top two floors (the top floor has MUCH more sunlight, is bigger than the basement, and would prefer not to live under anyone).  Also, we would not need to add any new stairs if we go with Option 2.

Can anyone think of any issues that might help us reach a decision (e.g., zoning, taxes, etc.)?  I think we are going with Option 2, but would be swayed if there are big issues I am not aware of.