Sketchy Deal and Agent but Numbers Work

6 Replies

I have a potential off market deal in my local market but there are a few things that seem off and I just need a little advice.

Market: Norwalk, CT (hot market right now!)

Price: 470k

Building: Duplex with a big detached garage in the back that was converted into a large studio. Agent marketed it to me as a triplex.

Situation:

A few months ago, a broker approached my partner and I about an off market deal. Apparently, a group of investors were splitting up and wanted to sell off their investments (this is coming from the broker so not sure how true it was).

•We ran the numbers and it Cash flowed between $600-800/ month with all the units rented.

•Broker told us that they had a buyer, but their financing was falling through, so we should get pre-approved to put in an offer.

•We got pre-approved, told him we are good to go. He told us he would let us know when the buyers financing officially fell through, but then just completely ghosted us. We figured the buyers worked it out or he went with someone else.

Fast forward a few months – He calls me and says: hey it looks like it’s going to be available again.

•He said it’s zoned for a duplex though.

•I asked him what it would take to make the studio in the back an official dwelling unit and he didn’t have an answer for me, just emphasized the rental income I could get for it.

Numbers still look good but I’d rather not do anything illegal and I would want to go about it the honest way. I asked him why he didn’t just put it on the market and he said if I don’t go for it then he most likely will.

Any advice on how I should approach this and if anyone knows the process of turning a garage into a legal unit would be much appreciated.

Thank you! 

To turn a garage into a legal unit you would need proper permits and inspections. If you have a trusted contractor, have him walk the garage with you and he'll let you know the cost of making the change legally rehab-wise as well as permit fees, inspection fees, etc. 

Lots of sketch in this game, @Zachary Bayles . If this is a legal duplex, you offer like it's a duplex. Maybe the garage unit can be made into a legal unit, but it's not legal now. There could be a lot that goes into making it legal. Not least of which, is it zoned for a triplex? Turning a garage into an apartment takes a lot more than just slapping up some drywall. I would be shocked if it met code.

Secondly, I'd be shocked if any small MFR in Norwalk can actually cash flow $200-265/unit/month.

Caveat emptor, Zach.

@Jaysen Medhurst thank you Jaysen! I agree with you 100%. The agent kinda gives me the run around when I ask the zoning questions. Maybe that’s why the other buyers fell through because they didn’t feel comfortable buying something that was going to be a big hassle to make legal? Who knows, but it doesn’t sit well with me. All units have been renovated so we thought this would be a slam dunk...doesn’t look like it though.

We calculated mortgage, taxes, insurance and other expenses about 2800-2900.

Rental income:

Unit 1: 1 Bedroom rent for 1,200

Unit 2: Studio upstairs 900

Unit 3: Large detached garage apartment $1400

Maybe we were a little aggressive with our numbers? I appreciate the advice!

@Jaysen Medhurst Hit on some very good points when navigating this type of deal, especially in CT where the zoning regulations tend to be pretty strict. 

What you would be looking for in order to turn a 2 unit into a 3 unit is a variance from the city which is not only hard to get, but it is almost always cost prohibitive once you account for all of the improvements you need to make to be in line with codes.