Buying a Multi-Unit property that is Zoned as a SFD

[beb0p]

@UNC4Me
There's actually a lot that I can do with a 4-unit building. Me and my fiance will live in one unit and continue to collect rent from the other three. Then as the tenants move out I intend to move my inlaw into one of the units. Our salary is more than enough to cover the mortgage even without the rental income (though having rental income is nice). As my family grows, I may combine the units for more space, maybe even correcting the violation to make it into a SFD again (but still keeping an in-law unit for the inlaw). The thing is, comparing the comps, this building is actually worth more as a SFD than as a multi-unit (obviously because of the issues with it being a multi-unit). Bonus is that it is in a neighborhood that I think has tremendous upside and is close to transportation. So basically I'm buying a property with a cloud over it in an upside area, over time I will correct the problem while the neighborhood goes up in value; I'm looking long term here, in 10-20 yrs this house in this area will be one of those buildings that people drool over. The potential is up in the cloud but I guess the downside is equally great...


@NY Annie
You make a good point. If the tenants want to mess with the LL then this can get very messy very quickly (and expensively). This is something that we'll have to take into account. The risk may not be worth it for us. We're thinking... not walking away yet but we're thinking. I think the situation would be better for me if there isn't tenants in it. I don't need the rent money but I do have use for a 4-plex.


@wireyourworld
I pretty much know what an attorney will say.


@MrRational
I think you and NY Annie is making similar point. Point taken.


@ETex2
The property is about 40% below what a similar legal multi-unit would be. I don't think any appraiser not aided by a seeing-eye dog is going to miss the illegal conversion. So yeah, you're probably right that a lender will not touch this. If that's the case, I don't even have to consider the point made by NY Annie and MrRational because I won't be able to afford it since I can't pay all-cash.

[oregonwoodsmoke]

it might be grandfathered in. It might have had a zoning variance.

If it is currently legal and burns down, you won't be able to replace it with anything but a single family dwelling.

If it is an illegal building then the tenants have a lot of power over the landlord that they would not have in a legal building.

I do not buy anything that has not been fully permitted and inspected. There is too much risk otherwise.

[oregonwoodsmoke]

I suggest that you take the address down to county planning and find out for sure.

There are strange things in zoning, like one neighborhood in my area that is zoned single family except for the corners, which are zoned for a duplex.

Find out the legal standing of the building before you do anything else.

[DMenscha]

Originally Posted by beb0p

The point is that it is an illegal conversion. So here's what happened at the beginning -the owner bought the land and built a four stories building with intend for it to be a 4-plex. But he hid that fact by not putting in separate entrances and the three extra stoves; so when the building inspector came, it looked like a really big single family home with a lot of bedrooms and only one kitchen, which passes the code for a SFD. After passing final inspection and receiving the occupancy cert, the owner put in walls, entrance doors, and kitchens to finally make it what it is intended to be - a 4-unit building. But it is also illegal.

It is highly unlikely that the seller will "clear" that up. For one, there are already tenants in there. Makes no sense for the seller to kick them out and correct the problem because it means he loses the rent money. Second, and this is the more important point, the seller should have no problem selling this property even with the issue that I mentioned. If it cannot be financed then someone will pay all-cash for it. I guarantee this thing will sell, the only question is if it is to me or someone else. If it's to me, I need financing, hence the question.

I believe you have answered your own question. Good luck trying to get that past a mortgage underwriter or even worse, the building department AFTER you buy the place.