All Forum Posts by: Dan K.

Hi @Phillip Dixon and welcome to BP. Depending on your finances, I personally wouldn't be too concerned about an FHA loan.

We are currently in a very competitive real estate market -- investors are competing, but lenders are competing as well. If you income can support a loan and you have the necessary cash for a downpayment, FHA loans are likely not your best option.

Hi @Maricell Hall,

1) Check zoning -- especially setback requirements and number of remaining parking spots per a dwelling. You might need 3 spots after renovation depending on town/city. It can be complicated if you are not used to reading legal documents, but you should be able to figure out what you can build "by right."

2) Think about ceiling height if you have a concrete ceiling. You'll need a significant amount of insulation.

3) Does conversion make sense versus new construction? If it's an out building, you might be better off with net-new construction instead of trying to convert a structure that was never intended for residential use. In my case because of zero setback and other factors, net ground up construction was not possible. However, new construction may be cheaper and easier.

4) Find an architect that is experienced with unusual situations.

5) If you need variances, find "the guy" -- aka, the lawyer that is basically at every single zoning meeting and knows ever member of the board. I am a lawyer and could have represented myself very easily, but I didn't even consider that option and instead went with an attorney that has been at basically every zoning meeting for the last 20 years.

6) Once you have a plan, if you are going to need variances, reach out to owner-occupied neighbors. It's better for you to approach them rather than them getting a notice about a zoning board meeting.

Hi @Alejandro B.

My 4th unit is basically new construction -- it's a converted garage that became attached to the main structure during construction.

I had to add fire alarms and sprinklers to the new construction 4th unit, but did not have to fully sprinkler the existing units because I did not touch them.

A big renovation to convert an existing 3-family to a 4-family very well might trigger the need for a full building sprinkler system. Personally, if I was in your position I would just create a 4 bedroom apartment if the rents support the work. If it's EASY to add an additional 4th unit in the attic, absolutely explore it -- but if you are going to need to do a lot of work on stairs and access, I would avoid it. It really comes down to your specific circumstances.

If I were to do it all again, I would make many small changes, but big picture wise I would have done the same exact thing. 

Hi @Matthew Kinch -- great project! Congratulations!

Where was it in Brighton?

What did you do about a second egress? What kind of work did you do to the basement?

I converted a 3 family to a 4 family in Cambridge. The fire department was fine with no sprinklers but the building department required it for the new construction only. I am an attorney and felt like the building department made the wrong decision, but after some back and forth, installed the sprinklers versus having a protracted legal battle.

In general, there was a seminal case in 2016. MacLauren v. City of Holyoke regarding 475 Mass. 231 (the regulation on units of 4 or more needing sprinklers). The case reached the highest court in Massachusetts (Called the Supreme Judicial Court -- aka SJC) The investor purchased vacant 4+ unit apartment building and planned on a rehab.

The investor, MacLaurin argued he didn't need sprinklers because the rehab was minor and that the installation of sprinklers would be much more costly than putting them in at the time of construction. Obviously if you are gutting a building, putting in sprinklers is fairly straightforward, but more cosmetic rehabs are the question at hand.

The ordinance uses the term “so as to constitute the equivalent of new construction." So this legislative language needed clarity.

The SJC rules that the investor would need to install sprinklers if the rehab was "so substantial that the physical structure is rendered ‘the equivalent of new construction’ i.e., in essence as good as new.”

In short, there is still a lot of unknown. It's a balance between getting a project done, an appetite for fighting city inspectors, and pragmatic investments. In addition, going to the city or fire department with case law in hand is not generally a good approach -- they are not going to sit down and read a long legal case.

In the end, my new construction being fully sprinklered, means that if I want to gut the other three units, I can do so without needing to add sprinklers to the new construction (but I would add sprinklers to the remaining 3).

Great work @Tyler Munroe

I really like the fact that you are upfront with the "cons." You might want to address child safety. As a parent of young children, the open stairs and the big gap in the closet under the stairs seem dangerous.

A  couple of questions:

1) Do you know the difference between your net income leasing vs. STR? Obviously it's early to get all of the data.

2) Does your lender and insurance carrier know about the use as a STR? Curious what their reactions were if they are aware.

-Dan

Hi @Alejandro B.,

I own a four-family with an attic that has been converted into 2 additional bedrooms and an additional common space for a now 4 bed, 1 bath unit (combined with floor below).

You first need to look at zoning and figure out if zoning would allow by right a 4 bedroom. Go to the city's/town's property tax database, look up your property and it will tell you how it is zoned. Then lookup the zoning ordinance to find our how many units you can have per a square foot of land.

For example, your town might be 1 dwelling unit per 1,500 square feet of property. It is highly dependent on your neighborhood's density.

Next, figure out your FAR (floor area ration). This will be a number like .75, .5, 1.5, etc. So in a .75 zoning area, if you have a 6,000 square foot plot, you'd be able to have 4,500 square feel of floor area (the definition of "floor area" is a bit complex, but this will give you a rough number).

If you need to go through zoning, you want to ask for the least number of variances possible -- FAR and density are pretty big ones to ask for.

You should also engage with an architect. Cities and towns have become more strict with second egresses. If you have an escape ladder, many now require actual stairs for example.

If you are going to need dormers, many towns and cities have specific rules about dormers. Additionally you are going to have to think about insulation (architect can give guidance on this) -- a converted attic will get extremely hot in the summer.

It then comes down to costs of construction versus rents. A new apartment is going to be significantly more in construction costs than adding bedrooms.

Finally, you need to think about insurance. I converted my property from a three-family to a four and am now having to get a commercial insurance policy instead of regular homeowners -- it's not a big deal, but it is annoying. I wouldn't let insurance drive your decision making, but it is something to think about as you go on this process.

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Hi @Grace Yuen,

You've gotten great advise. Don't forget, if you buy a 2-family and wish to house hack, you don't just need to think that Unit 1 is for tenants and Unit 2 is for you.

Depending on your living situation, you can rent out your owner-occupied unit by the room (roommates paying rent), or have short term rentals.

Let's say you are looking at a 2-family, each having 3 bedrooms with existing rents of $2,500.

Unit 1 can be rented for $2,500

You can occupy Unit 2 and you can rent out 2 rooms for possibly close to $2,500 total. A tenant might be thrilled to rent a room for $1,100 a month if there are no studios or 1 bedrooms in the area for under $1,500 a month.

I personally believe this strategy is a good one for people just starting out in a hot market like Boston.

If you want to do even better, in my scenario, you can rent Unit 1 by the room. You need to make sure that you match up potential roommates well so that you aren't having to deal with roommate issues, but you can maximize rent by renting by the room.

** Of course adjust my scenario rents depending on your rents

I'd put together a list of 10-20 local banks and talk to their mortgage / refinance people. Every bank has different lending standards. So of the underwriting rules make no sense from my point of view, but because it's a competitive market, as investors we can just move on.