Duplex conversion-Potential 6 month wait

[Karissa Sampson]

About us: Used the BRRR strategy, have 5 doors in 3 properties with $300k in equity and $1800 cashflow per month. Started in 2020.

Bought a single family home in mid June 2022. Its zoned for use as SFR, duplex, triplex, fourplex, apartment etc. Its site use is SFR which requires a site plan waiver to change the use to a duplex. We plan to convert it form a large SFR to an up/down duplex. The numbers work as a SFR BRRRR, a SFR flip, a duplex and a triplex. Obviously the numbers are tighter as a SFR. Multiple assurances from the city that the zoning was correct, that the site plan waiver needed to be requested first (3-4 week turnaround time quoted), then the building permit could be requested (4-8 week turnaround time quoted), then we could start renovations. We wanted to be above-board and pull permits for everything and are now bogged down by the system with a potential for a 6 month delay before we can start the project. Part of me wishes we would just do most of the work and then file for the permits later down the line for the duplex conversion.

Site plan waiver submitted 7/1. Initially submitted as a request to convert to a triplex but amended to be a duplex due to costly building code requirements in our locale.

Site plan waiver DENIED 7/29. We were told that it seemed like a complex project and the planner wants to review it with us at a "Pre-Application Meeting" before anything moves forward. They wanted full drawings of the building, the lot, project description etc. We were out of the country and did not provide this until 8/30, a month later.

PreApplication Meeting approved on 9/7 for a meeting date of 10/26. Apparently 1 of the 2 people who do this work is out on long term medical leave due to an accident and they only hold the meetings on Wednesdays once a week.

10/26 is 4 months after we acquired the property. Assuming the Site Plan Waiver and Building permit timelines still apply after and *if* the project has approval to proceed, we are looking at late December to late January for starting the work. Potentially 6-7 months after acquiring the property. 

Its an older 1970s home and we started demo already (mostly removing wood paneling, drop ceiling, old carpet) so its not rentable as is. Mortgage payment is $2,580/month for a $15,480-18,060 holding cost for the 6-7 months until we can start work. We figured into our numbers a 6 month renovation timeline including holding cost, but now we are looking at the additional 4-6 months of renovation timeline to pay holding costs since we may not be able to start until the new year.

I know the short answer here is that we took on a large project, should have expected this and planned accordingly. However, I need to be financially savvy here and am looking for help. We have $70k in cash for the project right now.

Some thoughts I've had about how to proceed:

-Continue with the duplex conversion: Adds $200k in ARV. Cashflows $1,420/month. Plan to cash-out-refi if appropriate at the time the project is done. To accomplish the conversion: Cash out refi the duplex that has $300k equity or request more from an existing HELOC on another property, for enough money to get the new duplex conversion done. Could also work some extra shifts and earn the money for the different. Renovation estimate was $89k including holding cost of mortgage but now we may need up to $18k more given the prolonged permitting timelines.

-Ditch the duplex conversion and work as homeowner-as-contractor and renovate the SFR to rent out as one unit. Gains about $100k in the ARV and cash flows $300/month. Could file this permit right now without the pre-application meeting or the site plan waiver 4 week wait period and just wait the 4-8weeks for a permit. Costs less to renovate and project could be done faster

-File a permit now to renovate as a single family home or do it unpermitted. Get nearly everything done and then file for a duplex conversion later. Put the downstairs unit on a submeter with the hope that sometime it can be metered separately later. Keep the water on the same meter.

Thoughts? I feel like the answer is just to find the extra money and follow through on the initial plan.