Multi unit conversions

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  • #40541
    Nicole6543
    Member

    I am NACA approved and currently looking for a 3 to 4 unit in my area. I have questions regarding how NACA deals with properties that have a finished unit that is not quite a legal apartment, but with affordable upgrades, can be turned into a legal unit.

    Example: I want to buy a house that has 2 legal units, and one finished attic. It would cost $15k to turn this attic into a 3rd unit. Assuming I have been approved for a large enough mortgage to do the conversion, is there anyway to get NACA to calculate the mortgage as 3 units instead of 2? (to boost affordability)

    Thank you!

    #40544
    zameen
    Member

    Yes, you can do that … you will have two appraisals – one “as is” and the other “after renovation”. For the “after renovation” appraisal you need to have a scope of work, plans (including preliminary drawings) cost estimates etc. to appraise as a three unit. On the basis of that appraisal you can get approved for up to 110% of appraised value … but only up to the conforming loan limit for your area (check that amount – no one told me about those limits until I learned about it on this board – I had to inform my RE agent ).

    #40572
    Nicole6543
    Member

    Wow, interesting. Thanks for sharing!

    #40577
    TTrumble
    Member

    Hello Nicole6543,

    Actually zameen was not entirely correct. You will still be buying the property as a two-unit. However, funds to legally complete the conversion to a three unit can be built into the loan. Other than that, zameen described it well.

    BTW zameen, your real estate agent should have understood that Conforming Loan Limits would have applied to your case as they apply to all conventional loans. Anything over that figure is automatically considered a “jumbo” loan rather than a conventional.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 3 years, 11 months ago by TTrumble.
    #40588
    zameen
    Member

    ^

    yes the RE agent should’ve known the limits but i think assumed that it was similar to a neighboring county that is way higher … But if everything else works out – the limit in the longer term will turn out to be good ’cause it imposes a limit on me so I don’t go through the stratosphere, and will make me make choices that may well bring good returns. So, hopefully, all will be well that ends well …

    #40589
    Nicole6543
    Member

    Tim,

    Thank you for your response! I’m sorry I’m a total newb about all this stuff, I’d like to make sure that I understand. Using the example I presented in my original question:

    I would need to get two appraisals – one “as is” appraisal, and one “after renovation”. I could get approved for up to 110% of “after renovation” appraised value. But as to affordability, NACA would not then consider the expected rental income from the 3rd unit when factoring my affordability.

    In other words, if I could not afford the property as a 2 unit, I would not be able to use this process to move myself within the margins of affordability by using the expected rental income from the newly added unit, right?

    Thank you for addressing my question!

    #40590
    TTrumble
    Member

    Hello Nicole6543,

    That’s a great question, and one I’m going to have to research for you as I have never come across a conversion with HAND funds. I can tell you for a fact that for legal purposes such as title, deed, and even the loan, the sale will be for a two unit. However, if you know you are already planning on converting it to a three unit, I can foresee possibly including the additional rental income in the loan calculations.

    I’ll have to check into things, and at the moment I’m in Miami for the Achieve the Dream Event, so It may be a couple of days before I get back to you.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    • This reply was modified 3 years, 11 months ago by TTrumble.
    #40593
    Nicole6543
    Member

    Excellent, thank you so much! I can certainly wait. Thank you for looking into it.

    #40594
    zameen
    Member

    I considered such a conversion property (did not go through) and was told unofficially that for the purposes of loan calculation that additional unit’s rent would be included. Since the offer was never accepted the question did not go any further … but the offer was made with the assumption that the additional unit’s rent would be included for loan calculations (i.e. for calculating affordability).

    #40604
    Nicole6543
    Member

    @Zameen

    That’s so inspiring to hear. Thank you for sharing! This could make a huge difference for me. I wonder, if I could get renovation estimates, as well as before and after appraisals, and supply all of this information when requesting the offer letter. I’m looking forward to hearing from Tim whether or not this is feasible. I don’t know how many sellers would be accommodating, and it sounds a tad bit expensive, but for the right opportunity it may be well worth it!

    #40615
    TTrumble
    Member

    Hello Nicole6543,

    Rental income for the proposed third unit CAN be included in the affordability calculations. There is one small hitch possible however. Prior to the application, the city will have to approve the conversion to a three unit property. Otherwise the conversion would be illegal. A little extra legwork, but is should be worth it!

    Definitely get the renovation estimates ASAP so your intent is clear if nothing else. Appraisals are actually ordered by the bank, so they will deal with the As-is and Subject-to numbers.

    Tim Trumble
    Online Operations, NACA
    ttrumble@naca.com

    #40618
    Nicole6543
    Member

    This is great, thanks Tim! So, do you think this order of operations sounds about right?

    1) Get renovation estimates
    2) Get city approval
    3) Get “before” and “after renovation” appraisals
    4) Get offer letter
    5) Make offer
    6) If accepted, begin normal closing procedure through the HAND department

    I just want to make sure I’m explaining it right. Thanks!

    #40626
    zameen
    Member

    @Nicole so here’s the thing … there are some upfront / out of pocket costs associated with this … I know a bit about this because I’m going through a renovation/rehab process … Here is what I did, and that may or may not be the direction you want to go – and it may be good to get some further consultation:

    1. Made offer for property – with a rough real estate agent’s thinking about how much work the house would need.

    (If you have a contractor, or an architect – I suggest take ’em along to tour the house get a rough estimate on how much work on the house would cost – and then give yourself plenty of room to maneuver when you make an offer) .

    2. Found architect – came up with floor plan / design.

    3. Looked high and low for contractor – think I have one now.

    4. Based on the contractor’s bid – an after renovation appraisal will be requested. An “as is” was needed to make sure the house would appraise as is … otherwise – it can become a problem and would be a sign that the house may not appraise enough to cover the renovation $$$.

    The out of pocket costs involve the architect or designer to come up with a scope of work and floor plan – based on which the contractor can come up with a bid… It is best to not spend too much $$$ on this if you do not have an accepted offer …

    #40655
    Nicole6543
    Member

    @zameen
    Thank you so much for your insights! This process seems scary, but I think I’d like to give it a try. I’ve seen 3 properties so far with the potential for this type of deal. I need to start by finding the right contractor and an appraiser. Thank you for being so kind and sharing your experiences. And by the way, good luck with the house! You have already come so far and have discovered so much! I hope you get exactly what you want 🙂

    #59720
    frankysmom
    Member

    Has anyone gotten through this process since this post? My question is how would one go about getting permission from the city or permits if you don’t yet own the property?

Viewing 15 posts - 1 through 15 (of 18 total)
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