If you want to purchase an investment property, you might be drawn to multi-family homes because of the ability to collect rent from several tenants at once. If you can’t find a multifamily house for sale that fits your goals and budget, purchasing a large house and converting it to apartments is another option worth considering.
Benefits of Converting a Large Single-Family House to a Multi-Family Property
If you own and rent out a single-family home, you’ll only be able to collect rent from one tenant every month. If a tenant moves out, you don’t immediately find another, and the property sits vacant, you’ll still have to cover the mortgage, taxes, insurance and other costs.
With a multifamily property, you’ll receive income from several units. You can price them so that even if one or more sit unoccupied for an extended period, you’ll still be able to cover your expenses.
If your goal is to generate substantial rental income, you’ll have to purchase several single-family homes to attain the kind of financial freedom you’re seeking. Owning and renting out a multifamily home can make it easier to reach your goal.
In an area with a limited supply of apartments for rent, buying a large house and converting it to a multifamily can be a smart financial investment. That’s particularly true if the house is near a college or university where there’s continuous demand for affordable housing.
Problems You Might Face When Converting a Single-Family Home to Apartments
It can be hard to renovate a house that was designed to be used by one family and turn it into several apartments. A single-family house generally has one kitchen and a small number of bathrooms.
Dividing a house into apartments and adding more kitchens and bathrooms will require major structural changes, the installation of new plumbing and electrical wiring and upgrades to the HVAC system. The costs can be staggering. Think carefully about how you would finance renovations and how you would cover costs if you couldn’t rent out all the units.
When it comes to design options, the amount of flexibility you’ll have will depend on the house’s location. Local zoning rules can limit the number of units that a property may contain and require each unit to have a fire exit. In some neighborhoods, zoning rules might not allow multi-family homes at all.
Costs for taxes and insurance might be significantly higher for a multifamily home than for a single-family property. Maintaining multiple apartments can also be much more complicated and expensive than taking care of a single-family house. If you own a multifamily home, you might have to hire a property manager to handle maintenance. That can reduce the burden on you, but it will also reduce your profits.
Think Before You Buy
Purchasing a single-family home and dividing it into apartments may or may not be a wise investment. Carefully consider your goals and finances, a house’s location and demand for rental properties before you decide.
