Ok - i'll admit, the subject line of this post is a bit sensational. I'm not going to jail. Not for this anyway. (But maybe for my killer dance moves.) But here's the question i'll pose to the BiggerPockets crowd. (I'm working on a new book on Multifamily for BP, and I'm in the chapter on Zoning, so I thought it would be good to get some additional perspective!) If I want to buy a duplex... and I find out that it's located in an area where the zoning only allows for single family (or, let's say, multifamily is maybe allowed BUT this duplex clearly was converted from a single family house years ago without permits) - obviously this is a "non-conforming property." So my question is: what are the downsides of this? Like... has anyone ever heard of a government forcing someone to turn their property back to a single family house after its been carved up? I assume most cities operate on a sort of "don't ask, don't tell" policy, but maybe that's just my experience. Could a landlord who rents out his "illegal duplex" (i.e. an old house that has been converted) get in any kind of trouble, or would they ever be forced to fix it? I'll admit - i have several properties like this. I call em "monster houses." They can cash flow like crazy - but what are the legal / financial risks? Thanks all! Appreciate your thoughts as I put together this book!

The answer in Minneapolis, Minnesota is 100% stop the illegal unit and get it approved or don't rent it. Your "tenant" can file a rent escrow action and get 100 cents on the dollar back in rent--everything paid. It is very unlikely a use and enjoyment argument will mitigate any of it back. Plus you will be out legal, etc. Like most things in life--everything is all well and good--until you don't get along.

@Brandon Turner - Chicago has a provision in it's code to potentially allow for an extra unit. About half the properties in the areas I deal with have one additional unit in addition to how many units are on the zoning cert issued by the city 13-196-740 One additional dwelling unit over original allowed – Conditions. A pre-ordinance (built before July 8, 1957) residential building or building of mixed residential occupancy, not complying with the requirements in force and applicable to the building at the time of its conversion, may be altered so as to legalize one dwelling unit, in addition to the number of dwelling units originally authorized, providing that said unit was determined by the office of the zoning administrator or the zoning board of appeals to have existed prior to July 8, 1957, and provided such building complies with the other provisions of this chapter. Such conversion need not comply with the requirements of the following specific provisions of this chapter: (a) Section 13-196-660 (height limits); however, in frame buildings, four or more levels of living space shall be prohibited and in buildings of ordinary construction, with or without attic living space, five or more levels shall be prohibited; (b) Section 13-196-050; however, all dwelling units must comply with the exit provisions of Chapter 13-160 except basement dwelling units may have a second exit through a room containing a heating plant; (c) Section 13-196-670 (stairwell enclosures); (d) Section 13-196-680 (corridor enclosures); (e) Section 13-196-690 (dwelling separations); (f) Section 13-196-710 (basement ceiling construction); however, if the basement contains a dwelling unit the entire basement ceiling construction is to be wood lath and plaster of half hour construction; (h) Section 13-196-720 (heating plants); however, basement apartments are to be separated from heating plants with partitions of one hour construction.(Prior code § 78-72; Amend Coun. J. 6-14-95, p. 2841)

@Brandon Turner - nit-picky I know, but what you’re describing is actually an illegal addition or alteration, not a non-conforming property in the eyes of a lot of city officials. The definition of nonconforming from the city’s perspective (at least in the Seattle area) is a property that was converted either with permits or without permits before they were required to a use that is not compatible with the current zoning. If you can prove through historical records that at one point before zoning law was established or changed that this property was operating legally, and has continued to operate continuously, then the property is (legal) non-conforming. Without such proof though the property is not non-conforming, and is simply an illegal structure. There is no such thing as (illegal) non-conforming here. Curious if other markets use different definitions, but this is true of Seattle at least. I run into a lot of other agents who mis-use the “non-conforming” label to try to lend some legitimacy to what is simply an illegal addition or alteration, which just muddies the water and results in uninformed buyers making costly mistakes

Early in my investing career, I bought two duplexes on one large lot in Mableton, GA. Four units, all rented. Amazing deal. Until the SECOND night I owned it, a large branch fell and broke a power line. I then learned, aside from doing better due diligence next time, that the property was grandfathered into previous zoning, which was now SFR-only. No problem, except that if I wanted to get the power line restored, we had to redo all electrical per the county inspector. To redo all electrical, we lost our grandfather status. Losing that status meant my 4 units were now 2 units. I begged and pleaded with the county, but they took no mercy on me. I somehow was able to sell it quickly, take a small loss, and move on.

Illegal multifamily... am I going to Jail!?

Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

6y

If they take you to jail look for the Bigger Pockets birthday cake I send you... inside is a chisel and hammer.

I reckon it depends on the local zoning. Here are older threads that are related to your question:

https://www.biggerpockets.com/forums/311/topics/380509-buying-an-illegally-zoned-property

https://www.biggerpockets.com/forums/52/topics/503166-owned-duplex-not-legal-opinions

https://www.biggerpockets.com/forums/88/topics/432109-buying-a-multifamily-home-that-is-zoned-as-single-family

12 Reply

Hai G.

Investor · San Mateo, CA · Member since 2015 · 62 posts · 52 votes

6y

One downside is the ability to do conventional financing for the property which limits the buyer pool. In your example if we assume the zoning is single family but the property is grandfathered in as a duplex, lenders may not be willing to lend against the property. This happened to one of my deals a few years ago where I couldn't find a lender willing to lend against a legal non-conforming triplex (zoned duplex). That was also why the property kept getting under contract but repeatedly fell out of escrow. Not sure if this is a typical situation elsewhere, but is/was true in the Bay Area.

5 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

6y

Call it a recovery house , and there isnt much they can do .

4 Reply

David Clay

Real Estate Investor · Chattahoochee, FL · Member since 2014 · 133 posts · 107 votes

6y

Originally posted by @Matthew Paul:

Call it a recovery house , and there isnt much they can do .

Do you mean for substance abuse treatment? If so, can you explain a bit more? I would think that those sort of units would still have zoning compliance issues, but maybe you are talking about something else?

2 Reply

James Mc Ree

Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 936 votes

6y

I know of at least one house in our township that had an in-law suite added without permits. It was then sold, turned into a duplex and rented. The building inspector performing a rental inspection was surprised to find a duplex. The township took the owner to court and forced it to be converted back to an SFR after the township politely asked him to convert it back.

Title insurance and the sale U&O didn't catch it. I don't know if insurance later compensated the new offending owner.

2 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

6y

Originally posted by @David Clay:

Originally posted by @Matthew Paul:

Call it a recovery house , and there isnt much they can do .

Do you mean for substance abuse treatment? If so, can you explain a bit more? I would think that those sort of units would still have zoning compliance issues, but maybe you are talking about something else?

Not in my area , there is some HUD rule that allows them and it overrides local zoning . It really pisses off the neighbors but there is nothing they can do . There is a guy around my area that runs about 10 of them and makes big $$$ doing it .

1 Reply

David Clay

Real Estate Investor · Chattahoochee, FL · Member since 2014 · 133 posts · 107 votes

6y

Originally posted by @Matthew Paul:

Originally posted by @David Clay:

Originally posted by @Matthew Paul:

Call it a recovery house , and there isnt much they can do .

Do you mean for substance abuse treatment? If so, can you explain a bit more? I would think that those sort of units would still have zoning compliance issues, but maybe you are talking about something else?

Not in my area , there is some HUD rule that allows them and it overrides local zoning . It really pisses off the neighbors but there is nothing they can do . There is a guy around my area that runs about 10 of them and makes big $$$ doing it .

That’s interesting one of our local county commissioners runs several group homes and is making good money as well I’d thought about converting a six unit into a group home to increase the profits you can get more per door for sure but depending on what you’re doing it requires some setup and employees - intellectually disabled adults vs other mental ailments vs substance abuse or halfway house etc. Right now I haven’t taken any action on it but, yes, money can be made in group homes like that OK. Thx for the response

1 Reply

Lee RipmaPro Member

Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes

6y

@Brandon Turner

I was doing due diligence on a property in Kansas City, it had 4 units but 5 addresses. That 5th address was a basement unit with its own entrance that had clearly been used in the past. I thought I would be able to bring the unit back to life as a “reverse penthouse” in a great area. During DD I found the property was zoned SF but grandfathered in as 4 units. Talked to the city and my insurance guy. City said no way to 5th unit but I’m still thinking I can get away with it, I’ve got entrance and address. I talked to my insurance guy and he said you won’t be covered for something that happens to the person in living in illegal quarters. So let’s say there is a gas leak and my tenant dies (extreme example) I’m not covered by insurance. That was enough to get me not to consider that 5th unit.

Podcast Guest on Show #373

15 Reply

Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

do 1st ask for forgiveness later?

some places have the rule only 3 people different last names. which to me is dumb! what about the woman that has 6 kids with different last names? :)

But in some ways taking advantage of your tax paying neighbors. extreme example, if 100 people illegally lived in a rental house, the amount of property tax money collected would not be commensurate with services used like trash, schools, streets, etc etc.

1 Reply

Justin Tahilramani

Rental Property Investor · Fayetteville, NC · Member since 2014 · 884 posts · 670 votes

6y

In my opinion this is a simple one - higher risk = higher reward. You know it isn't 100% kosher - you also benefit from a higher return.

2 Reply

Artem Belayev

Rental Property Investor · Shoreline, WA · Member since 2017 · 38 posts · 15 votes

6y

@Brandon Turner

I think it also really depends to the layout of that house. Does everyone have access to the electrical box and water shut off? Those are all emergency measures that play a big role. I know someone that had a SFR converted into a duplex style. Where they rented the downstairs and upstairs separately With 2 different entrances. The stairs that led downstairs were dry walled closed. The city found out and they had to open up the staircase and remove the downstairs kitchen since the kitchen wasn't permitted. And since everyone in the house didn't have access to the electrical panel and water shut off. Im sure true duplex also have their own fire rating and much more to follow.

Zoning is very interesting.

1 Reply

Artem Belayev

Rental Property Investor · Shoreline, WA · Member since 2017 · 38 posts · 15 votes

6y

@Brandon Turner

Also depends on lot size. For example in shoreline wa we have R6 zoning for SFR so 6 houses per acre of land. So roughly 7200 a lot per residential house. If you have a 14400 sq ft lot you may be able to convert it legally as a duplex. I know each city and county has different laws and requirements.

2 Reply

Isaac El

Springfield Gardens, NY · Member since 2017 · 258 posts · 63 votes

6y

@Brandon Turner Hi Branon, ABSOLUTELY in NYC if you do this, you will get a partial vacate violation, cellar apartment violation (very common to take 1 family house and convert cellar illegally, or 2 family house with cellar into illegal 3 fam) you will keep getting DOB violations till you fix it, I have also seen FULL VACATE orders on the properties as well, then you need permits, and inspection, its a total mess, not recommended in NYC

3 Reply

Ron Singh

CA · Member since 2014 · 244 posts · 47 votes

6y

@Brandon Turner

pretty much "don't ask,don't tell"

its very common here in bay area, have seen many sfr converted to mf, duplex or another house built in backyard (as a inlaw unit ) actually for rental purpose.

Anyway, be careful about your killer dance moves, that can definitely be a ticket to the jail. :)

1 Reply

Alex Olson

Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes

6y

If someone is still living in a non compliant when you purchase, I think you would be ok as long as you are a good landlord. Don't do anything stupid and you will be fine. Also depends on neighborhood, city, state. Hope this helps!

0 Reply

Account Closed

Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes

6y

The answer is probably different if I’m having a beer with you at a bar, as opposed to writing a book that officially represents the views of biggerpockets?

8 Reply

Amy A.

Portland, ME · Member since 2012 · 616 posts · 550 votes

6y

Yes, you can go to jail. Use this example for the book, and send me a free copy :-)

https://www.pressherald.com/2018/08/25/portland-landlord-reports-to-jail-for-conviction-in-fire-that-killed-6/#

This landlord was known as a "cool" landlord who let his tenants do what they wanted. Some of them decided to sublet rooms in the house and put locks on the doors, contributing to the deaths of a bunch of young people in a fire on Halloween.

Within the state of Maine, I've seen all the extremes, which shows how it varies depending on town. I once had a flip with an illegal unit. The code enforcement officer made me remove the stove. I moved it into the next room and put a tarp over it, like he told me to. By removing the "cooking area" it was no longer a "dwelling unit". I made sure the buyer knew about this.

In the town I live in they allow accessory units restricted to family member use in some zones. I know a family who built two units for the grandmothers, but now that they've passed, they rent them to whoever they want to. Is code enforcement really going to check to see of they're related? I guess in Maine most of us are related, so they can check Ancestry.com or whatever.

In another town, I know of a house that was foreclosed during the recession because it stopped cash flowing when the city shut down an illegal 3rd unit in a huge house. Now the city is moving to "form-based" code, so the unit will be allowed, but too late for the previous owner.

It's usually not a problem until the neighbors get mad about something and report it, or there's a fire and people die. Probably not worth the risk.

By the way, please send Ryan back. We have snow, in April, and I'm sure he misses it.

5 Reply

Eric Bilderback

Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes

6y

Assuming you don’t go to jail there is no downside I’m aware of.

FYI: I might actually be pretty tough in real estate jail. I always tell people I could never go to jail they would have to kill me. But in real estate investing jail I think I could bide my time.

0 Reply

Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

Originally posted by @Eric Bilderback:

Assuming you don’t go to jail there is no downside I’m aware of.

FYI: I might actually be pretty tough in real estate jail. I always tell people I could never go to jail they would have to kill me. But in real estate investing jail I think I could bide my time.

What are in for?

grand theft auto

what are you in for?

I killed someone.

What are you in for?

I turned a 4 plex into a 5 plex! don't mess with me or else I'll go medieval on you & turn your studio cell into a 2 br.

9 Reply

Christian Cramer

Property Manager · Kihei, HI · Member since 2016 · 85 posts · 97 votes

6y

Not sure about mainland US but in Hawaii worst case that could happen is a neighbor reports some type of building permit violation to the county - and then the county requests to inspect the property, sees something built without a permit, and then sends the property owner a notice to modify the property to correct the issue.

if the property owner doesn't correct the issue after a certain period, they start fining the property daily. I've only seen this happen twice, a REO in Lahaina and a two story house in Kihei that had a converted downstairs carport to rental units, fines got up to around $100k. This is really rare though, vast majority of unpermitted additions go unnoticed and i would say a 3rd of the single families I sell have some sort of garage conversion or something unpermitted.

2 Reply

David McKelfresh

Member since 2020 · 10 posts · 5 votes

6y

I've actually had several clients do something like this. They buy a SFH and convert it into an up/down duplex with a shared laundry area. The ability to access both spaces from the laundry allows them to sell it in the future as a single family home.

My biggest concern would certainly be the insurance piece, but I suppose that's dependent on your risk tolerance and what your insurance provider can set-up for you.

0 Reply

Eric Bilderback

Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes

6y

@Kirk R.

Instead separating by race you would have to separate the flippers, from the buy hold crew. Its all about the cashflow sucka LOL!

Dude that jail sounds kind of fun. Kind of like summer camp!

2 Reply

Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

6y

Originally posted by @Lee Ripma:

@Brandon Turner

I was doing due diligence on a property in Kansas City, it had 4 units but 5 addresses. That 5th address was a basement unit with its own entrance that had clearly been used in the past. I thought I would be able to bring the unit back to life as a “reverse penthouse” in a great area. During DD I found the property was zoned SF but grandfathered in as 4 units. Talked to the city and my insurance guy. City said no way to 5th unit but I’m still thinking I can get away with it, I’ve got entrance and address. I talked to my insurance guy and he said you won’t be covered for something that happens to the person in living in illegal quarters. So let’s say there is a gas leak and my tenant dies (extreme example) I’m not covered by insurance. That was enough to get me not to consider that 5th unit.

@Brandon Turner This was going to be my comment, that a tenant could get out of paying rent, etc., by claiming your contract with them was void based on renting them an illegal unit.

You might get away with it based on ADU/JDU laws, depending on those laws in the jurisdiction of the property. For instance, in CA now until 2025 under state law, you can have an ADU and a JDU on any SF property in the entire state, and all planning/building departments must allow it with only a 4' property setback. You can legally convert a garage and add a separate building for an ADU, and have an attached JDU. So, depending on the configuration of this duplex, it may meet the new requirements/definition of a legal ADU or JDU. So, you might be able to get around the "illegal" duplex situation under more recent ADU/JDU laws.

2 Reply

Lucas TaylorPro Member

Accountant · Belmont, CA · Member since 2017 · 12 posts · 11 votes

6y

@Brandon Turner In addition to insurance companies potentially denying a claim from the additional unit, tenants are pretty savvy about this sort of thing. I've seen tenants blackmail their landlords and threaten to turn them in to the City's Code Enforcement when they don't get their way. I've also seen Code Enforcement get a complaint and "yellow tag" the building until the additional unit is torn out and the building is "safe" again per code. Like others have said, they can cash flow like crazy though. High risk = high reward

1 Reply

Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

Originally posted by @Eric Bilderback:

@Kirk R.

Instead separating by race you would have to separate the flippers, from the buy hold crew. Its all about the cashflow sucka LOL!

Dude that jail sounds kind of fun. Kind of like summer camp!

I heard the STR crew is putting a hit on the wholesalers!

0 Reply

Illegal multifamily... am I going to Jail!?

Illegal multifamily... am I going to Jail!?

Most Popular Reply

70 Replies