Would you buy a multi-fam with an illegal unit?

Question

Im in contract on a property that was listed as a triplex.  I have recently confirmed with the county that it is zoned as a duplex and is out of compliance as a triplex.

I think the zoning can be obtained with a $1500-2000.  I do not know what the implications are for insurance and or what other risks this poses.

I am considering going back at a much lower purchase price (as if it was a duplex) but my agent has already told me she doesnt think they will do that based on conversation with the seller agent.

In the end I think I can make the numbers work but it feels like I am assuming a lot of risk.

So right now I am considering a price that lands somewhere between what I am in contract for and what NOI from a duplex would value it as.

Just curious about the approach or lens others would use to handle this type of situation. Thanks in advance.

Bryan S. · Answer

@Brad E. I had a triplex in contract when it was found the rear unit was zoned as a shed, and it was not supposed to have utilities. In addition, the lot was not big enough for 3 units, I reoffered at much lower and didn’t get it.

I think that I saved myself a hard lesson in the end.

Pat L. · Answer

Just noticed your comment about the site plan. That's why we had to bring in a commercial architect & they are NOT cheap. Once all else was OK'd & the architect signed off we were home free. But our complex was way more involved. I did see one at the Bldg. Inspectors office written for a local duplex also going through our code/zoning dilemma & I believe the fee was just $2500. Hey it's just another deduction/cost of doing business !!!

Pat L. · Answer

@Brad E. NEVER believe it when they say they don't need to inspect it.

Best strategy, if you're really convinced it could be a good money maker, is to get the bldg., inspector on-board asap. Then again our bldg. inspector was replaced before we were finished & the new guy was the proverbial PITA. We also pulled in the Fire Chief to give us a candid opinion. If you do this & it's just a $500 fee for a no-fail variance & no major redesigns such as new $20k fire escapes etc you will be home free & have nailed a valuable legal triplex.

Good luck

Brad E. · Answer

@Bryan S.

Yeah, I went back today with a 53K lower offer.  We'll see how it goes.  If they take it great.  If not, I will let it be somebody else's project.

Brad E. · Answer

Thanks guys.  I'm going to go back with a much lower offer and see what happens.

Matt Nusbaum · Answer

I would personally steer away from it unless the price was compelling enough. Although, if the process is as simple as what you're told maybe its not that big of an issue. My fear would be reselling it and having the same problem as you mentioned as well.

Brad E. · Answer

@Pat L.

Thanks.  That is kind of what I was thinking.  There is always a price that makes sense.  Im just not sure how much work could be involved with getting it legal.

The county told me there was a pretty straight forward process that could be followed.  He said they dont even come out an inspect it.  Basically you have to file for it and then provide a site plan, and pay a fee.  The fee is $500.  Not sure what it will take to get a site plan.

However, in my eperience, there are few things that are as easy as they seem.

The other thing is I'm not sure what all can go wrong here.  I think worst case is they wont let me rezone it and I'm stuck with an illegal building.  Then I will have this same problem when I go to sell it.

Thanks for the feedback.

Pat L. · Answer

We did but were very lucky, but we also lowballed it by $75k.

It was a 6330 sq ft Farm House (we call it the Frankensteine House) that evolved as a conglomeration of units for each of the original builder's seven offspring. Some units were combined, some deftly separated over many years. It was a legal 3-plex at the time we closed on it & there were 14 ancient permits still outstanding. It did take a lot of trips (sucking up) to the bldg. inspector. 24 months of rehab to code, including a complete fire sprinkler system & hiring a commercial architect. We finally got it upgraded to a 6-plex. Today it's the proverbial cash cow.

Would I do it again ?? If the price was right & you know what you're doing it's definitely worth the risk.

Would you buy a multi-fam with an illegal unit?

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