Including 5th unit in a fourplex

[Raj Janakarajan]

Hello, I am out of state investor and recently bought a fourplex with a large backyard (Lot size 10k sq ft). There is enough space to include a separate unit in the backyard.  I am looking for advise on steps I can take to find out if it is possible to include a 5th unit in the backyard.  There is already a structure there that was used for storage I believe with foundation.  Does anybody know if it is even possible to do that?  

Raj

[Edward Liu]

You can convert 2 to 3 or 3 to 4 as long as zoning allows - with little consequence. For 4 to 5, even okay with zoning, you should think twice and analyze closely before proceed. Once it is 5 unit, comp no longer matters, CAP is the king. Loans are also different as you no longer can borrow through conventional loans. Same treatment for the next buyers - so you need to think in their shoes. Understand the type of buyers who will invest in 5+ units and see if they will be interested in this 5 unit property based on CAP and location.