You can transform a single-family home into a multifamily investment through a conversion where you split the home into multiple rental units. However, there are things to consider before deciding to convert.
Taking a large single-family home and converting it into two to four different rental units has the potential to provide additional income, which is attractive to many investors. There are several questions to ask yourself if you are deciding whether a conversion is right for your home.
Is there a market for rentals in your area? You wouldn’t want to spend money developing multiple units only to have vacancies and holding costs piling up.
Your town's area also impacts the rental market. Is the neighborhood mostly large single-family residences? If so, it might not be the appropriate area for multifamily rentals.
Every municipality has different zoning laws and permitting policies for multifamily dwellings. Some areas do not allow single-to-multifamily home conversions. However, if an area is trying to promote more rental units in the area, they might be happy to give the necessary permissions.
If you meet the zoning and permits and other conditions of your city, are the plans obtainable? Do you have a realistic construction budget? Do you have a plan to cover holding costs if the building plans don’t proceed as planned?
You should also consider how you will find renters for the property. Do you have a marketing plan? Or will you hire a property management company to handle finding renters, getting leases, and managing the property?
Every city has different safety requirements for multifamily living units. You will need to check with your local municipality, but some requirements might include:
These are just a few of the safety requirements you might see. It is important to address them, or have a plan to upgrade the property.
If you sell, is there a market for multifamily properties in the area? If the area is heavily single-family homes, you might have trouble selling the property in the future. However, if the rental market is growing, you might find a buyer quickly.
With so many factors impacting the decision to convert a single-family property into multiple rental units, it is wise to meet with a real estate professional or advisor who can help you evaluate the possibilities.
There are both benefits and drawbacks to your finances and the community you live in when converting a single-family home into a multifamily investment.
Some benefits include:
Some drawbacks include:
With so many conversion possibilities, it is definitely something to look at as a real estate investor. The key is due diligence and making sure the choice is right for you personally, financially, and for the market.