Non conforming 4 plex in Phoenix

[Paul Bradley]

I'm under contract on a 4 plex in Phoenix. Once we made our offer, we discovered the zoning is R1-6 and it's technically supposed to be Single Family. A friend whose a land use attorney said it's max 5/AC, our lot is about 0.25 AC. It's been used as a short term rental for the last 3-4 years and the numbers are really strong for what we were able to get it under contract for. We intend on doing 6-12 month furnished leases due to the neighborhood it's in. 

We have it under contract $30-50/SF under recent single family comps, so worst case we convert it back at exit and still cash flow in the meantime as a rental. It's been pretty tough to find anything that cash flows lately, so we're going to move ahead despite this after being told it's not an uncommon situation in this particular submarket.

We'd like to try and up zone so that it's no longer non-conforming. This would add significant value since 4-5 unit properties trade for 50-60% over our current basis. We'd need to pull permits to submeter the property, for example, and my understanding is it'd likely be denied due to not currently being to code.

Has anyone ever dealt with this before? How does the appraiser and lender view this? We're submitting as a single family since it is single meter and understand the current zoning but are curious how this may complicate the process as we go to close. 

Any insights appreciated. Thanks.