Any issues with purchasing Legal, Non-Conforming property?

I am talking to this lady who wants to sell her 2 unit property. One unit is 2/1 and the other is 1/1. The property has 2-1/2 garage and total gross monthly rent is about $1,250.

So, I called the city to confirm that the property is legal 2 unit and I was told that it's legal, but non-conforming. Not sure if each city has different definition for it, but here it means that the property is zoned as SFH; however, it's grandfathered in to be used as legal 2 unit. But if the property were to get destroyed more than 75%, then it would have to be rebuilt as SFH. If it's less than 75%, it can be rebuilt as 2 unit.

Now is there a problem with purchasing a legal, non-conforming property?

Greg B.

Real Estate Investor · Godley, Texas

Donor Pro

662 posts
12 awards
70 influence

Feb 08 '11, 08:15 AM

I have a non conforming property and there are risks. If you want to sell the property getting comps is tough and getting financing is even tougher.

Also, as you said, if the property were damaged severely you would not be allowed to rebuild other than SFH. Wouldn't that cut into your cashflow? You would still be on the hook for the original loan amount but less income.

I'm not saying to not do the deal. We did, although it's not even close to being our best deal.

E-Mail: IBuy@ChargerProperties.com
Website: http://ibuyjoco.com/
Twitter: tuitionsource / I Buy Johnson County

Edgar B.

Residential Real Estate Broker · la mirada, California

66 posts
50 influence

Feb 08 '11, 09:19 AM

Make sure you go to city & get copy of all building permits, ask for any code violations get copy of statement saying about the 75% code, get a letter authorizing you to get a copy of tax assessors appraisal sketch, they wont give to you without the letter and match with the city permits, has to be done considering the grandfather clause, you will need to show any appraiser, if there are no 2 units in near by area only a small % will be credited for appraisal value, use the income and save these papers.

George P.

Real Estate Investor · Baltimore, Maryland

1,289 posts
8 awards
54 influence

Feb 08 '11, 09:43 AM

it's an income property, so assess it as such
you can also use the "non-conforming" issue to negotiate the price down even further

Kevin Amolsch

Hard Money Lender · Lakewood, Colorado

88 posts
2 awards
50 influence

Dec 16 '11, 02:35 PM

I have a non-conforming 3 unit. It is one of my best cash flow deals but I keep running into a problem with the post office. They wont deliver mail to three mailboxes because they have it listed as a single family. They tell me to send them a letter from the city which I obviously cannot get. What do I do?

Steve Babiak

Real Estate Investor · Audubon, Pennsylvania

4,267 posts
14 awards
91 influence

Dec 19 '11, 10:13 AM

I have to agree with everything Greg mentioned above.

In addition to that, I will relate the situation of an investor who bought REO property something along these lines. The property was used as a two-unit rental prior to the foreclosure, in a town that has gov't officials who say that there are already too many rental units in the town So they have some ordinance that says that any property reverts to a single family when that property goes over 1 year without being used and having a valid certificate of occupancy. So this REO was unoccupied over 1 year, and when the investor who bought it wanted to get permits to fix the place up, he got a surprise - he was going to have to make it a single family. But his whole investment decision was driven by having two units with rents accordingly, and as a single family it wasn't worth the same; too late now for him.