Investor · Temple, TX · Member since 2015 · 111 posts · 80 votes
I was set to close next week on two MFRs (same owners, same street), but the appraisal revealed that they're both zoned as SFRs. This is in a historic neighborhood, so the renos were done before a permit was required. The bank will not do a conventional low-interest loan on a property that, in the event of total destruction, could not be rebuilt as a MFR. They will only do a 3/3/ARM, which will cut into my cash flow, big time.
The owners had no idea, but they're working with the city to have the properties rezoned. Here's the problem: It's going to take 2-3 months to go through the re-zoning process, which means these deals cannot close until July. That's a long time for my funding to be tied up just waiting to be used.
Has anyone else had this problem? I'm in Central Texas, north of Austin, and I know zoning laws vary from city to city. I'm curious to know: What issues did it cause for you, and what was the resolution?
Developer · Boise, ID · Member since 2010 · 53 posts · 30 votes
10y
Laura, that is pretty common in my neck of the woods. You can keep it as a multi-family without a problem but if you want to expand or do any major work, you may have to bring the property "into compliance". I can see why the bank won't lend on something like this.
I would also make sure the rezoning is actually approved before committing to a multi-family purchase. Zoning in cities is based on the long term plan for growth, set out by the planning department. Your deal may or may not be in an area where the city envisions multifamily in the future.
You can always ask for a rezone but many cities will need a better reason than just to fix a non-conforming property. Check to see what the city "wants" in that area. If properties around you are zoned for commercial and multi-family then you may be okay. If it is all single family homes, you'll have a fight on your hands with the neighbors and it will be hard to say this property "should" be multi-family. Most municipalities will take the easy way out and keep the zone as-is, but tell you that it is no big deal because you can continue to have the use "grandfathered in".
Investor · Temple, TX · Member since 2015 · 111 posts · 80 votes
10y
@Account Closed Hi! Thanks for taking the time to reply to my post. Fortunately, this is in an older, historic neighborhood where this kind of problem is common. The neighborhood has SFRs, MFRs and apartments, and the city has no plans to build or develop here. There are no more empty lots, which is a good thing.
The owners are being super-diligent about pursuing rezoning as quickly as possible. They're two older couples I've known for a long time, so I know they'll come through on rezoning. Plus, they're ready to pass the properties on to someone else, and this problem will arise with any buyer.