Two unit or three unit

[Kevin Kolling]

I am in a little bit of a holding pattern with the city pretty much locked down from the pandemic and considering my options.  I am in the process of renovating a 3 story rowhouse in the point breeze area that I’ve owned for close to 20 years.  Before I started gutting it, it was renting as a 2 unit with a 2br 1ba unit on the first floor and 3br 1ba on the second and third floor.  I’m hoping to extend the third floor the whole length of the house since the third floor was only the front half of the house before.    I originally was planning on the rehabbed house as a 2br 1.5ba on the first floor renting for $1600-1800p/month and a 3br 3ba on the second and third floor renting for $2000-2200.
 My questions would be 

1. Do you think those numbers are realistic $3600-$4000p/month combined? It’s a block from the Ellsworth/federal stop for the broad street line so it had nice access. 

2. Since I’m going thru a zoning process anyway, Is it worth considering a 3 unit.  Potentially a 2br 1.5 bath unit on each floor to reach a higher combined monthly rental income?  I know going from 2 units to three units does change some stuff in the philly code but I’m having a hard time finding exact details about that.  Does it need a standpipe and sprinklers no matter what? Or is that only for new construction. I’m pretty sure the common areas need different fire detection requirements.  I guess I’m wondering if the juice is worth the squeeze for three units.   I’m doing the majority of the work myself so it’s my sweat equity as far as labor costs.  Any advice would be appreciated

[Kevin M.]

Yes 3 unit requires some additional fire protections to include monitored fire alarm with pull stations, sprinkler system with FDC connection and back flow prevention, And connected smoke alarms in common area. 

I think your rent estimates are realistic depending on the layout and finishes. I tend to advise investors toward maximizing the number of units you can fit on the lot in most cases. You will make more money with 3 2BR units versus 2 3BR generally. The fewer the bedrooms the faster we can fill vacancy too. Of course this means another hvac system, kitchen, appliances, etc. so you’ll have to do the math yourself