Single Family to Duplex Conversion: First Project

[Lance La Croix]

Investment Info:

Small multi-family (2-4 units) other investment in Jordan.

Purchase price: $255,500
Cash invested: $1,500

We purchased our primary residence in February 2019. It had 3 bedrooms (2 main floor, 1 basement), 3 bathrooms (1 3/4 main floor, 3/4 basement), an extra room in the basement (no windows. Surrounded by porch, garage, and interior walls), and a three-seasons room on the main floor.
Our plan is to insulate, heat, and cool the three seasons room as well as add a kitchen to the basement and divide the home into two separate units.
Main floor: 3 bedrooms, 1 3/4 baths kitchen, dining room.
Basement: 1 bedroom, 3/4 bath, one extra room (office), small kitchen, large living room with fireplace.

We need to get a conditional use permit before we can convert the home. It has been hard to get in contact with the local zoning office so we are trying to figure out the proper order in which to complete the process.

What made you interested in investing in this type of deal?

We wanted to purchase a home and I have always wanted to be in real estate. Converting a single family home to a duplex seems like the perfect opportunity to get our feet wet without having to worry about closing on a home and a rental property. Also, we made sure we could comfortably cover the mortgage without a tenant so, after the conversion, the rental income will be gravy but we will not have to sweat about possible vacancies.

How did you find this deal and how did you negotiate it?

My wife and I had been looking at homes for over a year. We had specific wants and needs: I wanted a decent seized office where I could meet with financial coaching clients and where I could work in peace. We wanted a yard large enough for our two dogs. We needed a home that could be easily decided into two units and which had separate entrances. We needed a home that was zoned properly for a duplex conversion. Our list went on and this house matched our list perfectly.

How did you finance this deal?

We used a USDA Rural Development loan with 0% down. We negotiated a few points with our mortgage broker and are sitting on a 4.5% 30 year fixed rate mortgage. Our plan is to refinance in a few years (market permitting) in order to drop the USDA program fee which is about $75 per month.

How did you add value to the deal?

Our conversion will add an extra use for the home. Although it will be a duplex, the two units will be split by a hidden two-way locked security door. When we sell the home, the door will be opened and it can be a functional single family home with a mother-in-law suite. During our project we will also be adding a bedroom by insulating, heating, and cooling the three-seasons-room which is now my office.

What was the outcome?

We closed on the home in February and have been doing small repairs here and there. During the thaw, we discovered a major ground water leak in the basement bedroom. I patched the leak and we will be replacing the drywall and flooring soon.
We are waiting to hear back from the zoning office to make sure we do things in the right order. Inspection, permits, construction, inspection? Permits, construction, inspection? What do we need permits for vs. what can we do without permits?

Lessons learned? Challenges?

I mentioned a few challenges earlier. Because we were not purchasing this home primarily as an investment, we did not choose this property based on cashflow. On our next deal, I would pick a property that was in a better rental market and I also would use a conventional loan to avoid the program fees and the need to refinance in the future.
Also, If I were to do it again, I would wait to find a duplex that had already been converted or hire a contractor experienced in duplex conversion.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes! I worked with a local realestate agent who I found through a membership program I am part of. He was amazing. He was always punctual, easy to reach, and provided a lot of insight during the home buying process. He recommended a quality home inspector and even negotiated a $750 seller paid closing cost credit due to a minor window issue. The best part was that we got over $1,500 back in a rebate check by using the program to find him!