Converting Your Property To Multi-Family

Opportunities, Challenges & the Team You Need

For many Washington, DC property owners, a single-family property may have greater potential than its current configuration suggests.

A large rowhouse, detached home, vacant property, underutilized building, or property undergoing a major renovation may present an opportunity to create two or more residential units. A successful multifamily conversion can potentially increase rental income, diversify a property's income streams, improve its long-term value, and create additional housing.

But converting a property into a multifamily building is much more complicated than simply adding another kitchen and putting up a wall.

Before investing thousands—or potentially hundreds of thousands—of dollars, property owners should understand the zoning, building, financial, construction, licensing, utility, and management issues involved.

The DC Landlord Association (DCLA) and our network of Vendor Members can help property owners assemble the professionals needed to evaluate, plan, execute, and operate a multifamily conversion.

Why Convert a Property to Multifamily?

Consider a property currently producing $3,500 per month as a single rental.

If the property can legally and practically be converted into two or three units, its combined rental income may potentially exceed what it could generate as one residence.

That creates several possible benefits:

• Increased gross rental income

• Multiple sources of rental income from one property

• Potential improvement in property value

• Better utilization of unused square footage

• Ability to create separate owner and rental spaces

• House-hacking opportunities

• Additional affordable or market-rate housing

• Potential long-term wealth-building opportunities

However, the numbers only work when the conversion itself makes financial and regulatory sense.

That is why the first step should be feasibility—not construction.

Challenge #1: Can the Property Legally Become Multifamily?

One of the biggest mistakes an owner can make is assuming that because there appears to be enough physical space for multiple apartments, multiple units are automatically permitted.

They may not be.

The property's zoning, existing use, lot characteristics, building configuration, historic status, and other requirements can affect what is possible.

Before developing architectural plans or beginning construction, an owner should determine questions such as:

• How many units may legally be permitted?

• What is the property's current legal use?

• Is a change of use required?

• Are there density or occupancy limitations?

• Are there parking requirements?

• Are there restrictions on additions?

• Is the property located within a historic district?

• Will zoning relief or another approval be required?

How DCLA Vendor Members Can Help

DCLA's Vendor Member network can include professionals such as:

Real estate attorneys, zoning professionals, architects, engineers, land-use consultants, permit specialists, surveyors and other development professionals.

The goal is to determine what can actually be done before the owner commits significant capital.

Challenge #2: Determining Whether the Conversion Makes Financial Sense

Just because a conversion is possible does not mean it is profitable.

Owners should analyze the project as an investment.

For example, suppose converting a property into three units costs $250,000. The owner needs to understand whether the additional income and potential increase in value justify that investment.

A feasibility analysis should consider:

Acquisition or current property value + renovation costs + professional fees + permits + financing costs + carrying costs + contingency = Total Project Cost

That should be compared against:

Projected rental income + stabilized operating income + projected property value

Owners should also consider taxes, utilities, insurance, maintenance, vacancy, property management and future capital expenditures.

How DCLA Vendor Members Can Help

Depending on the project, owners may need:

• Real estate agents and brokers

• Lenders and mortgage professionals

• Appraisers

• Accountants and CPAs

• Insurance professionals

• Property managers

• General contractors

• Construction estimators

• Project managers

DCLA can help owners build a team capable of looking at the project from both the construction side and investment side.

Challenge #3: Designing Multiple Legal and Functional Units

A successful multifamily conversion isn't simply about creating as many bedrooms as possible.

Each unit needs to function as a home.

That means thinking carefully about:

• Unit entrances

• Kitchens

• Bathrooms

• Bedrooms

• Natural light

• Egress

• Ceiling heights

• Fire separation

• Sound separation

• Mechanical systems

• Electrical capacity

• Plumbing

• Heating and cooling

• Storage

• Laundry

• Trash management

• Common areas

• Security

• Utility access

Good design can significantly affect both construction costs and future rental income.

How DCLA Vendor Members Can Help

Architects, designers, engineers, contractors and property-management professionals within the DCLA Vendor Member community can help owners develop layouts that balance code compliance, construction cost, marketability and long-term operation.

Challenge #4: Permits, Plans and Inspections

Multifamily conversions can involve significant permitting and inspection requirements.

Depending on the scope, the project could require architectural drawings, structural plans, mechanical plans, electrical plans, plumbing plans and other documentation.

Construction may also trigger multiple inspections.

Trying to solve permitting problems after construction has already started can become extremely expensive.

The Solution: Plan Before You Build

DCLA Vendor Members can potentially assist with:

• Architectural plans

• Engineering

• Permit preparation

• Permit expediting

• Code consultation

• Contractor coordination

• Inspection preparation

• Correction of inspection deficiencies

• Project management

A coordinated team can help prevent the common problem of having one contractor complete work that another professional later determines must be removed or modified.

Challenge #5: Electrical, Plumbing and HVAC Infrastructure

Turning one residence into several residences can dramatically change the demands placed on the building.

A property that previously had one kitchen may now have three.

One bathroom could become four.

One HVAC system may need to become multiple systems.

Electrical demand may increase substantially.

Owners may need to consider:

• Electrical heavy-ups

• Additional electrical panels

• Separate metering

• New plumbing supply lines

• Drain and waste capacity

• Additional water heaters

• Individual HVAC systems

• Gas service modifications

• Utility separation

How DCLA Vendor Members Can Help

DCLA's vendor community can connect property owners with licensed electricians, plumbers, HVAC contractors, general contractors and other specialists capable of evaluating existing building systems and determining what upgrades may be necessary.

Challenge #6: Fire and Life-Safety Requirements

When a property's occupancy or configuration changes, fire and life-safety considerations become extremely important.

Depending on the project, requirements may affect:

• Fire separation

• Smoke alarms

• Carbon monoxide alarms

• Doors

• Stairways

• Egress windows

• Emergency exits

• Fire-rated assemblies

• Electrical systems

• Common areas

These requirements should be incorporated into the design—not treated as an afterthought.

DCLA Vendor Members such as architects, engineers, contractors, electricians, fire-safety professionals and inspectors can help owners identify and address these requirements.

Challenge #7: Basement Units

The basement is often where owners see the greatest opportunity.

An unfinished basement may appear to be thousands of dollars in unused monthly rental potential.

But basement conversions can also create some of the project's most complicated challenges.

Issues may include:

• Ceiling height

• Egress

• Natural light

• Moisture

• Foundation conditions

• Waterproofing

• Drainage

• Sewer backups

• Underpinning

• Structural modifications

• HVAC

• Fire separation

Some properties may require excavation or structural work to create sufficient usable space.

DCLA Vendor Solutions

Owners may need access to:

• Structural engineers

• Waterproofing contractors

• Foundation contractors

• Excavation contractors

• Underpinning specialists

• Concrete contractors

• Drainage specialists

• Plumbers

• Mold-remediation companies

• General contractors

Solving the basement correctly during construction can help prevent extremely expensive problems later.

Challenge #8: Financing the Conversion

Multifamily conversions can require significant capital.

Depending on the owner and project, financing strategies might include renovation financing, construction loans, investor capital, lines of credit or other real estate financing products.

The financing structure can affect the entire project's profitability.

DCLA Vendor Members in lending, finance, accounting, insurance, real estate and related industries can help property owners evaluate available options and understand the financial implications.

Challenge #9: Construction Management

A multifamily conversion can involve dozens of people.

Architects.

Engineers.

Permit professionals.

Demolition crews.

Framers.

Electricians.

Plumbers.

HVAC contractors.

Drywall contractors.

Painters.

Flooring installers.

Roofers.

Inspectors.

And more.

Without coordination, schedules slip and budgets increase.

Project Management Matters

Property owners should establish:

• Detailed scopes of work

• Construction budgets

• Contractor agreements

• Payment schedules

• Draw schedules

• Change-order procedures

• Material specifications

• Project timelines

• Inspection milestones

• Punch lists

DCLA Vendor Members can provide both construction and project-management resources to help owners maintain control of the project.

Challenge #10: Licensing and Operating the Finished Property

Finishing construction isn't necessarily the end.

The property must then transition from a construction project into an operating rental business.

That can involve:

• Rental licensing

• Inspections

• Certificates and approvals

• Lease preparation

• Tenant screening

• Rental pricing

• Marketing

• Security deposits

• Move-in procedures

• Property management

• Maintenance systems

• Bookkeeping

• Legal compliance

This is where working with a landlord-focused organization can become particularly valuable.

The DC Landlord Association isn't simply focused on helping an owner renovate a building.

Our objective is to help owners successfully operate the property after construction is complete.

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Build Your Multifamily Conversion Team Through The DC Landlord Association

A successful conversion may require 10, 15, 20 or more different professional services.

Instead of trying to find every professional individually, property owners can use the DC Landlord Association Vendor Member Network as a resource for assembling a project team.

Depending on the project, that team could include:

Planning & Development: Architects, engineers, zoning professionals, surveyors, permit specialists and development consultants.

Construction: General contractors, electricians, plumbers, HVAC companies, roofers, framers, drywall contractors, painters, flooring contractors, waterproofing companies and specialty trades.

Financial: Lenders, mortgage professionals, accountants, appraisers, insurance agents and investment professionals.

Legal & Compliance: Attorneys, landlord-tenant professionals, licensing specialists and compliance consultants.

Operations: Property managers, maintenance companies, leasing professionals, cleaning companies, landscapers, pest-control companies, security providers and other property-service vendors.

Don't Start With a Contractor. Start With a Strategy.

Before demolishing a wall, digging out a basement or purchasing materials, determine whether the project works.

A better process is:

Property Evaluation → Zoning & Feasibility → Financial Analysis → Conceptual Design → Construction Budget → Financing → Plans & Permits → Construction → Inspections & Approvals → Licensing → Leasing → Property Management

That process can save an owner from discovering halfway through construction that the original plan doesn't work.

Have a Property You Think Could Become Multifamily?

Maybe you own a large single-family house.

Maybe there's an unfinished basement.

Maybe you're considering an addition.

Maybe you've purchased a distressed property that needs complete renovation.

Or perhaps you simply want to know:

"What is the highest and best use of my property?"

Before spending money on construction, start by evaluating the opportunity.

The DC Landlord Association can help connect property owners with Vendor Members across the disciplines necessary to evaluate and execute multifamily conversion projects.

From feasibility and financing to design, construction, compliance, leasing and ongoing property management, the right team can turn a complicated conversion into a structured real estate development project.

Own the property. Understand the opportunity. Build the right team. Execute the plan.