Staging the work across the occupancy year is what makes a third conversion hold together.

Here is a case worth studying for anyone on a second or third conversion. A 1978 split level, 1,640 square feet, bought at 268,000 with 5 percent down as an owner occupant, rate 6.5. It needs a roof, the panel is a mess and the bathrooms are original. The mistake most people make on the first one or two is doing the work in the first three months, because it is exciting to live somewhere nice. The version that holds sequences the work against what the rental actually needs and what the cash can absorb. Roof in month two, 11,400, because that is the item that would kill an insurance binder for a landlord policy later. Panel and a subpanel in month four, 3,900, owner labor on the rough plus a licensed electrician for the tie in and permit. Then nothing for six months. Bathrooms in months ten and eleven, 9,200 for both, with mid grade fixtures, because rent comps in this band do not pay for tile work. Total in is 24,500 against the 13,400 down and about 7,000 in closing. Rented at 2,340 against PITI of 2,061 including PMI. The part that nearly breaks a case like this is DTI on the fourth pre approval. Two prior rentals with full year lease history get counted at 75 percent of gross by many lenders, and the newest one has no history at all, so at application it is pure debt on the ratios. Picture coming in at 44.8 against a 45 overlay. One credit card with a 240 balance is the difference. Lenders differ on all of this, and the right move is to ask for the overlay sheet in writing, which most will provide when pushed. What to keep: the expensive structural item early and the cosmetic item late. The roof protects the insurance and the appraisal. The bathrooms are still fresh when the first tenant walks in instead of carrying a year of the owner's own showers.