Made a Rookie Mistake

8 Replies

Hi BP,

I submitted an offer on a 3/2 home with a 1/1 ADU attached which was accepted. I'm getting cold feet after reading the city's ordinances. I can still cancel the deal and will lose $250, which is better than the what ifs that may occur if everything goes through. I should have done my due diligence, but was looking for a home to house hack and its location was ideal. I let emotions get the best of me on this one.

Here's the dilemma:

-Home is zoned as an R1 and the ordinance states it can't be rented out to more that one family.

-I confirmed the info above with the city inspector, he stated a couple options: have the owner put in a request for rezoning, or wait until I official close and own the home. This process takes about a month. Most rezoning request that went to the board has been approved, but its located closer to the main street of the town.

-Application to rezone is minimal, so I was thinking I could go through with the process, BUT its not a guarantee.

Has anyone dealt with situations like this?

We are located in West Texas & it seems as if everyone turns a blind eye to illegal rentals. From a business standpoint, I'd like to protect my investment and go the legal route so utilities can be separated at some point.

Thanks!!

@Lynell Sonoda as I read here is what I understand:

1. You will use this as your primary residence and rent out the ADU for some period of time.

2. You will eventually move out of the 3/2 and rent that out as well which is where the conflict comes in with the city ordinance.

If the above is accurate:

1. You stated most of the applications submitted to the board were approved AND the process is fairly simple. 

  a. Ask the current owner to apply and make the purchase contingent on that. 

  b. Close and apply for the rezoning permit / apply for an exception. Don't assume yours won't be approved because it's close to the city etc. It may be as simple as the R1 classification was assigned when the original 3/2 was built and someone added the 1/1. 

2. Talk with a legal professional to see if "leasing the home w/ an option to buy" to one of the tenants will remove the "rent to one family" conflict if the permit is denied. 

3. Set both tenants on the same lease with an agreement stating the rent will be split 70/30 or whatever the ratio works out to be. 

4. Tenant in the 3/2 subleases to the tenant in the 1/1. This way you as the owner have only "rented" to one family.

There are options, the zoning classification is the boundary. Most of the time we see it as an either you're in compliance or you're not.  

The successful investor will see it as how do I play within the limits of the boundaries. You're a successful investor.

If the numbers work find a way to make it work. If you don't someone else will.

Good luck.

@Carl Millsap Thank you for your input. I appreciate it:) My husband and I were discussing "creative" strategies to see how we could make this work since the numbers will work well for us. Wanted to get input from others to continue our brainstorming session and am happy you chimed in.

Originally posted by @Carl Millsap :

@Lynell Sonoda as I read here is what I understand:

1. You will use this as your primary residence and rent out the ADU for some period of time.

2. You will eventually move out of the 3/2 and rent that out as well which is where the conflict comes in with the city ordinance.

If the above is accurate:

1. You stated most of the applications submitted to the board were approved AND the process is fairly simple. 

  a. Ask the current owner to apply and make the purchase contingent on that. 

  b. Close and apply for the rezoning permit / apply for an exception. Don't assume yours won't be approved because it's close to the city etc. It may be as simple as the R1 classification was assigned when the original 3/2 was built and someone added the 1/1. 

2. Talk with a legal professional to see if "leasing the home w/ an option to buy" to one of the tenants will remove the "rent to one family" conflict if the permit is denied. 

3. Set both tenants on the same lease with an agreement stating the rent will be split 70/30 or whatever the ratio works out to be. 

4. Tenant in the 3/2 subleases to the tenant in the 1/1. This way you as the owner have only "rented" to one family.

There are options, the zoning classification is the boundary. Most of the time we see it as an either you're in compliance or you're not.  

The successful investor will see it as how do I play within the limits of the boundaries. You're a successful investor.

If the numbers work find a way to make it work. If you don't someone else will.

Good luck.

 That is not how the law works. Zoning is based on occupancy. Your "options" 2-4 are all occupancy of more than one family. Rather than try to play games and fool yourself into thinking you have outsmarted the law, it would just be better to openly violate zoning. For the most part zoning is only enforced when someone complains. Be a good neighbor, rent to good people and nobody will care. If you want to follow the law, then just occupy with one family until you get it rezoned.

It sounds like most rezoning will gets approved, so just do it the right way and get it approved. As others mentioned, short term rental is an option. A short term rental is not a resident. If you owner occupy, most places allow this in ADU. Some cities have restriction on STR in non-owner occupied satiations, so check on that.

Make sure your insurance company is aware you are renting the unit and that two families are occupying. Make sure the policy is written accordingly and that the zoning is not an issue. Insurance could refuse claims or drop you if the situation is misrepresented to them. Liability is the biggest issue with illegal ADU, so make sure your provider is good with it.

@Joe Splitrock Thank you for your detailed advice. We decided to proceed with the inspection and appraisal. Hope all comes back well & I'll keep you all posted. My husband and I are actually going to occupy the ADU and rent the bigger portion of the home out. The inspector did say that you can have "visitors" that stay up to 3 days a week. I'm going to delve into the town codes more, but my thoughts is to just do a long term rental all utilities included or do a RUBS variation of 75/25 or 80/20 split. Im going to be selective with my tenants since the least attention is the best.. a lot of ppl around here rent to oilfield guys since the company foots the bill, but that's too much traffic for my liking.. I'll proceed with trying to get it rezoned and go from there.

I'll definitely talk to the insurance company about the pointers you've given me. Thanks!

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