Single family to duplex conversion

[Isaac Larson]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $317,000
Cash invested: $90,000

I am currently converting a single family home to a legal duplex while remodeling the main floor and adding two bedrooms. Final product will be legal duplex, split utilities, 3 bed 2 bath up and down.

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

Initially I was just considering purchasing a duplex, but my financing situation was unique, so I ended up getting a construction loan. The home came on the market, and I saw potential in very poorly used space to add two bedrooms to the main unit. This brought the total bed/bath count from 4/4 to 6/4. Initially the numbers were very enticing, but going through the conversion unexpected costs came up to complete the legal conversion. Returns will still be good in a buy and hold scenario.

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

Initially, the home was listed as a duplex, and I look at every new multifamily listing in the Twin Cities. It was promptly removed a few hours later, and listed as a single family. I saw it again about 30 days later, and decided to go check it out. None of the marketing included photos of the second level, the main floor needed a remodel to save it from the 70s, and it was advertised incorrectly as a 4 bed 3 bath. Initial list price was $350k. Negotiated down to $317k with $10k in seller paids.

How did you finance this deal?

Construction loan with BankCherokee

How did you add value to the deal?

Reworked main unit floor plan opening up walls, adding two bedrooms, in unit laundry on main floor, separating electric and gas, adding second furnace, converting to legal duplex, new kitchen in main floor, new flooring throughout main floor, new plumbing on main floor, cleaned out garage.

What was the outcome?

TBD

Lessons learned? Challenges?

While the 2040 Plan makes adding density/units to properties easier on the zoning aspect, what they don't tell you is building code is very strict. Between hiring an architect, splitting electric, adding a furnace, SAC & PDF fees, building permits, and fire/sound requirements the costs add up quickly. Working with the City of Minneapolis during COVID is very challenging. Unless there is a giant buffer in potential returns, I wouldn't recommend doing a conversion in Minneapolis.

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

Represented myself on the purchase. Would highly recommend my lender, Roger Hamilton at BankCherokee, and my Insurance Agent, Paul Domier at American Family. And myself as an agent of course :)

[Isaac Larson]

Originally posted by @Ryan Morgan:

@Isaac Larson would you be willing to provide a breakdown of your costs on the project?  e.g. - separating utilities, soundproofing required for duplexes, furnace/electrical/gas/plumbing work to split for units, etc.  Was the lot zoned residential single family? With the Mpls 2040 plan If you meet all requirements for the duplex conversion are there additional hoops to get it rezoned?  Thanks.

Yes of course.  Thanks for asking!

Here are the quotes I have thus far:

Furnace - $8500 for furnace and ac, $500ish to add separate gas meter

Electrical work & adding 2nd meter - $8200ish

Fire & Sound Separation - $7500 (not including electrical needed for lights)  I am working on getting this one down.

Sewer Access Charge Fee & Park Dedication Fee - $4179.9

Architectural Drawings - $2400

Paint entire unit - $3500

Permit fees - ???

The remainder of the budget was all for renovations and adding bedrooms to main floor.

The lot is zoned R1A, so with the 2040 Plan it has the ability to have up to 3 dwelling units.