I've been referred an off-market 2 Family property in CT that I'm evaluating and I'd love to hear what others think. This would be my first investment.
The property currently has 2 official units (with 1 with a long-term tenant). Each unit is a 2BR/1BA in very solid condition. The catch is that there's also a 3rd floor unit that the previous owner had occasionally (illegally) rented out which is a 2BR/1BA on it's own. The reason it's illegal is because it's only zoned as a 2 Family.
Currently there is $2100 Gross Monthly Rents for the 2-units.
So, I have a few things I'm interested in hearing some opinions about
- I know for a fact they'd go for a $240,000 offer which given expenses/taxes ($824/mo) would cash flow $216/mo. Is that worth it?
- Given that this deal is not on the market and there won't be an agent fee - should I be reducing my offer? If so, by how much? I was thinking 5%
- Should I also reduce my offer any more given that this is an off-market deal?
- Should I be concerned with the 3rd floor psuedo-unit? I'm worried that my lender will be concerned because there's appliances and a stove up there.
- Is it a possibility to convert my 3rd unit into a legal rentable unit? What is involved in that process? I assume my taxes will increase - is that true?
- Any other thing I should be weary of?
@Kyle MacDonald In my experience in Connecticut if something is zoned 2-family it is almost never worth to try and get it re-zoned as a 3-family. You would have to get the property at a steep discount in my opinion to explore turning that 3rd floor into a legal unit. Double check the zoning though to make sure 2 units is the max you can have.
As far as your offer goes, it is impossible to know what you should offer if we do not know where in CT the property is located. The price of real estate in Connecticut varies wildly based on where the property is located.
@Michael Noto thanks so much for the reply. I really appreciate it. And thanks in advance for any subsequent help.
The house is in West Haven, CT.
Where would I go to verify the zoning?
Would you mind explaining a little more what would [potentially] go into getting it re-zoned as a 3-family?
What other info can I give?
I think Kevin Siedlecki has property in the West Haven area. I don't know how to tag someone that is not in the forum already, but he is on bigger pockets. He might be able to help you answer some questions.
I believe that you cannot have a house rezoned but you could apply for a variance. I think you would have to go to the town hall website or to town hall to see if you can apply for a zoning variance or if they even allow it. I have a house in New London where I wanted to put in a driveway but it was too close to the property line so I would have to apply for a variance. I didn't do it, but the lady at the zoning office said I would have to fill out some paperwork and then going to a zoning board meeting and explain why I wanted it and how it made sense etc and then they would decide.
Awesome - thanks for the hints and the reference @Mat O'Grady !
$216 isn't worth it. I just passed up on one like that. my price was 75k with 1400 in rent each month.
Are you using a realtor to get comps or are you doing your own? If you are performing the comps on your own, double/triple check you are certain about what you want to offer for the home. To touch on the question is it worth it for $218/month, that depends on you. Are you going to miss your downpayment that much or can you afford to take in $218 monthly while gaining equity? Along with this, make sure you calculated all expenses into your formula so you aren't surprised at the end...
As for the rezoning... What a hassle it seems to be. Have you considered maybe turning the top unit into a 3bd/2ba? Maybe a master-suite upstairs with an office or some sort of recreational room (only suggesting this because a 4bd/2ba do not rent as frequently)? You can legally charge more for that due to the addition of a bathroom and bedroom and you do not have to worry about rezoning...
Let me know if I can be of further assistance.
@George P. appreciate the input -- I'm curious what number makes it worth it for you?
@Account Closed I'm doing the comps myself right now. Since the deal is off-market I didn't want to bring an agent into the mix and I don't have a relationship with one yet who would be able to pull comps for free for me.
As for the cash-flow - it feels worth it to me only because, as you said, I wouldn't really miss the down payment and since this would be my first property I think just "doing it" will give me momentum to get past the paralysis of analysis. Good advice on triple-checking my expenses -- since the margin is thin, I'll be sure to follow it.
I have definitely thought about the idea of making the top unit a 3BR/2ba. I think if re-zoning proves to be the issue that it seems it might be then we'll definitely go that way. The problem at the moment is the current tenant is the one in the 2nd floor -- perhaps she'll be willing to move to the first floor...
if it was 400 or 500 for that duplex I'd taken it. of course I was including the cap ex and the pm fee in the equation only because it's multi and multis is never on autopilot
@George P. agreed. And thanks again for the reply/help
@Kyle MacDonald even within West Haven the prices vary quite a bit.
One thing you might want to look into is flood insurance. Since WH is on the coast, we've come across in West Haven that need flood insurance and that was a deal breaker on the numbers.
Keep us posted on your progress.
@Jonathan Makovsky that's really great advice and I hadn't thought about that yet. I will dig into that more this weekend. Thank you
@Kyle MacDonald did you end up buying the property or investigating the 3 family zoning? I'm looking at purchasing a legal 2 family in New Haven CT that has been rented as a 3 family since the early 80's.