Divide or not divide a rental unit. What would you do?

[Luciana W.]

Dear BP people,

I’m a new investor and had recently purchased my first deal, a multi-family house in class A neighborhood I’m my area, the property is an original charming duplex building on the front with another smaller unit on the carriage house.

The main building, however, need a lot of work to get to the standard of the rest of the neighborhood.

This duplex consist in two very long units almost identical and it’s layout is very outdated with the kitchen at one end of the apartment and the living room at the other end (with outside doors on both ends), not to mention that even though it was advertised, by the previous owner as a 2 bedroom it consist in to 4 distinct rooms (not all of them with the corespondent closet) but it has been used like a 4bed apartment with roommates, living in each of the room. And even though that does not bother me, I feel that there is a better opportunity here...

If you read this post so far, maybe you can have so insight to my dilema...

Since the units are so big, about 1600sqfoot each, maybe I could sub-dived them? The way I was imagining the front of the unit would be a 2bed/1 bath with a new kitchen with an open concept opening to the current living room area, and the back a studio (or1 bed/1 bath) that will include the current kitchen with a few updates.

The difference in rent for a 2 bedroom and a 3 bedroom in the area is not as significant as the revenue even a studio could bring. If done correctly the difference in revenue could be about 2000$ a month. (Almost double from what I have now from the leases grand fathered from the previous owner)

It is a huge renovation, if I keep the units with this layout, it will rent, I could just do a small Reno on the current kitchen so I could rent a bit higher, and that would be it.

If I am able to subdivide the units not only will I be able to rent for more, I would brrr it and thanks some of the equity out.

What would you do if you were me? Can I even add units like this? Have you ever done such a thing? Any advice will be immensely appreciated!!!!