I am trying to get some clarity on an issue with a potential house that I am in the process of buying.
Scenario: I am planning to purchase what I believe to be a multi-family house in MD. The house being sold is a flipped property. It was a single family and converted to multi-family during the rehab, 2 units that are separately metered.
The issues and concerns arise once the house gets appraised and the appraisal submits the report. In the report, the appraiser states that house is currently zoned as a single family house. Unless documentation can be provided showing it is in fact a multi-family house, the appraisal will not hold at the stated price. The property zoning code is R-55, Single family detached house.
The document that was provided was a Use & Occupancy permit from 1989. The oldest date I saw was 1977 and the most recent date 1989 where it mentions that it is ok for 2 family dwelling. There was a stamp on the document states:
"Note: Approval is based on the site plan & use as shown. Any change of use or interior partitioning of original building may be subject to additional parking and/or loading spaces."
The house is newly renovated but I don't know if there are any changes to the site plan as a result. One thing I noticed on the drawing is that they have the porch (with measurements) documented but the backyard only documents a stoop and but now there is a full deck that is apart of the house. I do not know if there any other discrepancies in the house unless we ask for the permits.
So I looked up the permit history from the county and saw that the seller did pull the various permits to do the rehab on the property. However, after looking at the history, the recent permits are "residential" permits not indicating anything for multifamily.
I called both the permit and zoning office to get clarity on the documents that were provided. I asked the zoning office if there has been any changes or history of changes to the R-55 code and the answer was no. I asked the permit office the validity of the Use & Occupancy since it dated back to 1989 and was told that it would have to be redone since the codes the have changed drastically since that time.
Now I am in a position where I am in a contract to close on a house that I was under the impression was a multifamily but is a single family, I received the clear to close from the lender (pending the appraiser approving the U&O from 1989), the title company says he doesn't see anything that prevents me from closing on his end but with all that being said, something doesn't feel right.
The questions I have:
Is it really as bad as it seems? Am I stuck in this deal even though my intent was to buy a multi-family and its not? Is there an alternative solution or do I just walk away from it, if possible?
Thanks in advance.
First question is: What is your intention for this house? Is it to be used as a multi-family for tenants, you and your tenants (house-hacking) or your own private residence?
If its your own private residence then it doesn't matter about the code. You will be using it for you and your family.
However, if your intent for it to be a house-hack or a full rental then that code and its listing has to be rectified. Some cities like New York will not let you rent out a place if its not coded as a multi-family.
So if your intent was to rent it out, then I would WALK AWAY from this deal. You may have a long battle with the town ordinance to change the code and finally have it listed as a multi-family.
There are many fishes in the sea, this one just happen to not be the one at the moment.
LISTEN TO YOUR GUT.
Thanks for the input. It was essentially to house-hack. I did decide to walk away. It was to much uncertainty with the zoning and permit office.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing