Ruth Lerner is a Brookline REALTOR specializing in Brookline, Chestnut Hill, Brighton and West Roxbury, Mass. real estate. Since 2002 she’s represented both buyers and sellers with a post-transaction satisfaction rate of 97%. You can contact her on her website, and find her on Google+, Facebook, LinkedIn and Twitter.
If you own a two or three family house, I am sure you thought about the option of converting the house into condominiums. It is a tempting prospect, especially in a booming real estate market. Since the sum of condo values will exceed the house’s value, it is an idea worth exploration. But just because the market is hot doesn’t mean it will be profitable for you! Whether or not you should turn your two or three family house into condos depends on a few factors. Here are three questions to ask before you consider a condo conversion for your house:
1. What is the value of the home as a single entity versus as condominiums? Your very first step is to ask a highly experienced and real estate agent to give you a current price evaluation. The agent will need to provide you with a market analysis for several properties.
One analysis will be of the current market for multi-family houses in your area. Another analysis will be for the condo market in your neighborhood. For each unit in the building you will need a separate analysis, unless they are identical. Once you know the value of the homes, you will be able to figure out how much you are willing to spend on a condo conversion.
2. What are the costs associated with the condo conversion? There are several steps to the process, and each will cost money. There are three substantial expenses in a condo conversion:
Legal Expenses. You will need to hire a real estate attorney who will write and file the documents, and advise you on the legal process. This may cost $12,000-$15,000.
Rehab expenses. This will be the bulk of your expenditure. In order to sell a two family home as two condos, the City will need to inspect the home and ensure it is up-to-code. If your house is built in the late nineteenth century or early-to-mid twentieth century, like the majority of the multi-family homes, it is likely there is considerable work to do to get the house up to current standards.
I am not talking about the cosmetic changes. These are electrical, plumbing, building and safety upgrades, and getting the property up to current codes required in order to obtain a certificate of occupancy necessary to close. I cannot estimate this cost. If you’ve maintained and updated the house meticulously over the years, it may be $10,000 of various upgrades. If your house is needs a lot of work, it can cost $300,000. There is no way to estimate this without a licensed contractor.
Expense of selling the home. Other than the commission, which will be a percentage of the sales, you may also have to supply an engineer’s report for the condo conversion. This will likely be less than $1,000.
3. Do I have the time, energy, and financial resources (cash) to do the necessary work? This question is self-explanatory. You need to want to do the work involved in a conversion and have the money to pay for it.
This post originally appeared on Ruth Lerner’s blog, which can be found here.