Would you invest in illegal or nonconforming multi-fam property?

[Parker Mott]

Hi Members,

I'm a wholesaler in Ontario, Canada looking at several residential properties in the province that are currently renting 4 or 5 units, but which are zoned as single family residences. In all these cases, I called their respective cities to see if the properties could be legally converted into multi-fam, to which the zoning department said, basically, "no" for various reasons. Sure, you could apply for a minor variance, rezone, or challenge the city's refusal, but that takes time and money – and I am wholesaling here, so it's questionable that burden will attract a buyer even if the price is nicely discounted.

Are there landlords out there who, if the price was right, would acquire a rental property that wasn't in compliance... Of course, there's the risk of fines and having to shut the rental down and use it strictly as a single family, which would reduce your cashflow. I suppose if the wholesaler negotiated the price down to single family numbers or lower, that would pique interest.

I've discovered a lot of properties with this obstacle that I could potentially wholesale, using the illegalities as leverage to cut down the asking price. 

I'm curious, as a landlord, what your perspective is here. 

Does a great price offset the risk for you, or do you find it best to play by the book no matter what? Any related anecdotes are encouraged. 

Thank you all in advance for reading and responding,

Parker