SFH conversion to Duplex or Flip

[Brian Warren]

I put a bid in on a SFH that I know has a lot of potential but would like some feedback on the direction I should go with it. It’s an older home but most in my market are. It’s an estate deal so it’s being sold “as is” As is needs roof now or within 2 years best case Back porch needs replaced Minor things inside, but will add up This house has a lot of added bonuses that I can explain if relevant Purchase price $85,000 20% down will finance the remainder Rehab will vary based on strategy Bank also offering a financing option to give loan based on after rehab value. New type of loan through local lender Option 1 minor repairs and rent for $1300 Rehab costs minimal Roof $6,000 Porch $2500 Interior spruce up $3000-$5000 Option 2 easy split to Duplex Rents top $1000-$1100 Bottom $800-$1000 has workshop space and commercial style garage attached Again rehab minimal $27,500 Roof $6000 Porch $2500 Interior spruce $3000-$5000 Update existing 2nd kitchen in basement $5000 Take away spiral staircase and close up floor $2000 Egress a basement window $3000 ? Zoning or legal to split??????? Option 3 fix and flip put more into rehab ARV should be $140,000-$150,000 Rehab costs would be probably 40,000 Would update kitchen Some flooring Some paneling in basement Probably replace windows A litttle landscaping Along with roof porch etc I’m leaning towards Duplex option But I have heard that that could decrease value? This is a good solid bones property that would make a good long term rental in a decent area that should attract quality long term renters Any feedback is welcome Also anything that I am missing this is not my first rental but I am still new at this and have never done a lot of rehab. I have a great team, I have run other businesses and have developed a team around me that will do most of my manual labor Thank you

[Gilbert Dominguez]

Well keeping it as a single family residence does not make financial sense from my point of view because you are going to pay our or be on the hook for $125K of a possible return of only $15K so I would agree with you on the option to make it into a duplex. However check with your local building department for zoning as you would want whatever you do to be legal that would protect your investment and also satisfy a lender, they will want to see permits and contracts for improvements made. 

Let us say you get passed the legal requirments to turn this property into a duplex. In that case you will be concentrating on making the property case flow better so that market value should not be a great concern for you at this time. One way to possibly offset this is to legall convert this building into two separte legally titles propertied or condos if you will and for that there may be a lot size requirement from your local planning and building departments and cost you about another $15K to have an attorney do it for you. This might also affect the construction costs again because of building department requirments for two attached separate residences. However since you are mostly concerned about cash flow at this time you can always look into creating two separate legal properties at a later date. 

Anyway you are still not looking at any outrageously expensive proposition, and you would be making your money grow. Certiainly this would provide you with an experience you could use to pay yourself over and over again with other similar properties in the future. Experience and management skills are what realy build your long term wealth.

You can take two very similar projects owned and managed by two different investors and one will come out it with a loss and the other may come out of it making  a killing depending on knowledge, experience, and management skills.