[Calc Review] Help me analyze this deal

[Andrew Reyes]

Hi All:

I am getting serious about REI and have a goal of making my first offer on a property on Long Island by June 30. I have been analyzing one deal per day and have found that this strategy will be difficult at listing price with minimal rehab. I analyzed this deal assuming I could convert this SFR to a tri-plex. Please share any feedback on the many assumptions I made in this analysis (described in further detail below).

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Assumptions/Methodology

Listed for $500k, this SFR in Farmingdale, NY (Nassau County) has been on the market since December.

Offer: $350k. Zillow indicates that this property was lasted sold in 2006 for $454k. Assuming 3.5% down and 6% interest, this should cover the sell's mortgage

Estimated repairs: convert this SFR to a tri-plex by adding a kitchen to the basement (currently 2 rooms with bathroom) and 2nd floor (currently 3 bedrooms and a bathroom). The first floor currently has 2 bedrooms, bathroom, kitchen, living room, and dining room. Assuming 3 kitchens ($20k each) and 3 bathrooms ($5k each) plus a 10% over-run the rehab would cost approx $82.5k. The basement has an outside separate entrance and the 1st and 2nd floors would need to be split. Assuming (BIG ASSUMPTION) the stairs face the front door this can be accomplished sheet-rocking the entranceway leading to the stairs and adding 2 interior doors. Does anyone familiar with this area know if/what permits are required and what the might cost?

ARV: $570k. Based on Zillow comparable homes model.

Time to refinance: 6months from purchase. assumes 3 months rehab one month lease-up and 2 months to stabilize.

Acquisition: private lending from friends and family accruing 6% interest payable upon refinance. Is 6% a fair rate?

Monthly Income: assumes HUD FY20 Fair Markey Rent for the Nassau/Suffolk, NY Metro. Basement - 1 bed/1 bath ($1,624). 1st Floor - 2 bed/1 bath ($1,992). 2nd Floor - 2 bed/1 bath ($1,992) Is anyone familiar with Section 8 housing in Nassau County? Are there additional considerations if the plan is to place a tenant with Section 8 vouchers? (@JosephAsamoah his is based on your strategy discussed on episode 356 of the BP Podcast). Presumably, the first floor should command higher market rent as it has a separate living room, kitchen, and dining room and the other units would have eat-in-kitchen.

Monthly expenses: assumes insurance and property taxes based on the realtor.com listing as well as 10% vacancy, 5% repairs, and 5% capex.

[Michael Fliderman]

Just like what Craig said. There's no way, depending on which part of Farmingdale you are in that Town of Oyster Bay will allow you to make a SFR into a duplex and you can forget about a triplex, Town of Babylon will also probably reject the idea. Nassau county in general is against multifamily homes.

The only way for you to do that is to have an illegal rental, and that depends on whether you want to take the risk and if your neighbors are nice and won't call the town on you. 

I had to get a CofO for a foreclosed house that used to be designated a 2-family home, but TOH stripped away the designation and left the home with no CofO. Just getting a regular single-family CO on the home took thousands of $ and about 3 months. If i wanted to make it back into a 2-family it would've taken minimum 6 months, at least $10,000, and I would've needed to get the approvals of all my neighbors, a town approval and then a final vote from town board. 

It way too much of a headache here on LI to find/make a multifamily home.