Buying a home that's been divided into rental units

You’ve found a great house! It’s got all of the amenities you require and it’s in the right location, but it’s currently divided up into two or more rental units. Before you buy it with the intention of converting it into a single-family home (often called “deconversion”), consider the following:

Necessary Renovations
Depending on how much the house has been divided, you could be looking at a whole-house renovation, which is not only costly, but also messy and chaotic. However, if you’re going to live in the house at the same time as you renovate, a multi-unit home may offer some advantages. If it has multiple kitchens and bathrooms, you can renovate one of them while still using another. This can be far less disruptive than creating a makeshift kitchen in the living room or showering at your gym.

On the flip side, removing extra kitchens and bathrooms can eat up a considerable amount of your renovation budget. Changing the location of plumbing is more expensive than taking down walls, so consider whether the existing plumbing in an extra kitchen might be used to create another bathroom or combined with a second bathroom to make a luxurious master bath.

Hidden Treasures
The age and the quality of the home you’re considering buying should be factored into your decision, particularly where extensive renovations are required. You want to ensure that the structure is sound, however, age can sometimes be a plus. Some older homes have designs that include the sort of charm that often can’t be found in newer models. Removing newer dividing walls can uncover some hidden architectural jewels such as ornate balustrades or original crown molding.

Potential Value
Research the value of other multi-unit homes and deconverted homes in your area, to see if the cost of renovations will be reflected in the new property value. The good news is that in some locations multi-unit dwellings are valued lower than their single-family counterparts. One example of this is in New York City, where multi-unit townhouses sometimes sell for a third or more less than single-family homes in the same area. And once they are deconverted back into single-family homes, their property values can rise considerably.

Possible Incentives
Some cities are encouraging deconversions by offering financial help to cover the cost of renovations. In a specific area of Lansdowne, Pennsylvania, for example, you can apply for a forgivable loan of up to $25,000 towards the project, provided that you intend to live in the home for at least five years. (One-fifth of the loan is forgiven each year.)

In Lansdowne the grants are being offered to preserve historic housing, but there are other reasons for a city to support deconversion. Fewer rental units and more single-family homes can increase the stability of a neighborhood by reducing the number of transient renters. Traffic and congested parking problems may also be reduced by having fewer inhabitants in a given area. Check with your city government to see if there are any grants available in your location.

Existing Tenants
Lastly, if there are tenants still living in the house when you’re ready to purchase it, ask to see their leases and add a clause into your purchase contract stipulating that they must be gone before you take possession. Any outstanding leases that exist after a sale must be honored by the new owner, so don’t neglect to take this step, unless you want to suddenly become a landlord.

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