Is Norristown PA, the next Hot Spot?

Question

John Knisely · Answer

Just to clarify for everyone reading, recent legislation changes prevent settlements from being delayed due to U&O related issues. There are a handful of municipalities that make Realtors cringe when they have a U&O inspection in. Some are very, very strict and often unreasonable in the eyes of many in terms of required repair items. Of course, even though it should not delay closing, the repairs have to be made within the timeline and reinspected per the specific municipality guidelines, like Jon said.The Pennsylvania Municipal Code and Ordinance Compliance Act (MCOCA) sets forth procedures which must be followed by municipalities that require property maintenance and other code inspections upon the sale of a residential property. MCOCA was recently amended through Act 133 of 2016 to address situations in which municipalities were not following the Act, leading to some real estate transactions being postponed or cancelled due to minor property maintenance violations. The amendments in Act 133 clarify the rights and responsibilities of both municipalities and property owners so these issues don't occur in the future.

Municipalities are not required by the Act to inspect existing homes that are being sold. However, municipalities that do require such inspections must issue a Use and Occupancy Certificate, prior to the date of purchase, in the following manner:

1) USE AND OCCUPANCY PERMIT: If no property maintenance or other code violations are found, a Use and Occupancy Certificate must be issued allowing the property to be used or occupied as intended.

2) TEMPORARY USE AND OCCUPANCY PERMIT: If the municipal inspection reveals at least one violation, but no substantial violations (see definition below), the municipality shall issue a Temporary Use and Occupancy Certificate. The purpose of a temporary use and occupancy permit is to authorize the purchaser to fully utilize or reside in the property while correcting code violations.3) TEMPORARY ACCESS CERTIFICATE: If the municipal inspection reveals a substantial code violation which renders a building “unfit for habitation,” a Temporary Access Certificate must be issued. The purpose of the certificate is to authorize the purchaser to access the property for the purpose of correcting substantial violations.  No person may occupy a property during the term of a Temporary Access Certificate, but the owner shall be permitted to store equipment that is related to the proposed use or occupancy of the property or is needed to repair the substantial violations during the time of the Temporary Access Certificate.

SUBSTANTIAL VIOLATION: A Substantial Violation is a condition which makes a building “unfit for habitation.” Unfit for habitation is defined as: “A condition which renders a building, structure, or any part thereof, dangerous or injurious to the health, safety or physical welfare of an occupant or the occupants of neighboring dwellings. The condition may include substantial violations of a property that show evidence of: a significant increase to the hazards of fire or accident; inadequate sanitary facilities; vermin infestation; or a condition of disrepair, dilapidation or structural defects such that the cost of rehabilitation and repair would exceed one-half of the agreed-upon purchase price of the property.”

ESCROWS AND BONDS PROHIBITED: A municipality may not require the escrowing of funds or posting of a bond, or impose any similar financial security as a condition of issuing a certificate. But before accessing the property, a property owner is still generally required to follow all the applicable rules for permits, fees, escrows, etc., under existing building, property maintenance and fire codes or other health or safety codes.

COMPLIANCE PERIOD: A new owner will have 12 months from the date of purchase to either bring the property into compliance with codes or demolish the building. At the request of the property owner the municipality may negotiate a longer time period, but may not shorten it.

REINSPECTION OF PROPERTY: (1) At the expiration of the 12 month time period or before that time, if requested by the property owner, the municipality shall reinspect the property to determine compliance with the cited violations. (2)  If a temporary access permit has been issued and reinspection indicates that the noted substantial violations have been corrected but other cited violations have not yet been corrected, the municipality shall issue a temporary use and occupancy permit to be valid for the time remaining on the original temporary access permit. (3)  If the reinspection indicates that all noted violations have been corrected, the municipality shall issue a Use and Occupancy Certificate for the property.

FAILURE TO COMPLY BY OWNER: If the property owner fails to correct the code violations cited by the municipality, the following actions may occur: 1) Revocation of the temporary certificate; 2) The purchaser will be subject to any existing municipal ordinances or codes relating to the occupation of a property without a Use and Occupancy Certificate; 3) The purchaser will be personally liable for the costs of maintenance, repairs or demolition sufficient to correct the cited violations, and a fine of not less than $1,000 and not more than $10,000.

PRE-EXISTING VIOLATIONS: This Act generally applies to violations that are found as a part of the municipal inspections done for property resale. But these rules do not apply to violations of a local code or ordinance that are already the subject of a fine or some other judicial action against the current owner, or to properties that are subject to certain other statutory provisions. In those instances, the violations must be addressed under the other applicable rules, whatever they may be.

Jon Graboyes · Answer

Investors have been asking this question about Norristown for decades. The highway/train infrastructure is there. Challenges are with local government, extremely high taxes, and a difficult L+I Dept. Much of the housing stock is historic and the cost to renovate just doesn't make sense for many projects, which I feel hurts the community's revitalization prospects. That said, development plans for King of Prussia look tremendous, and there could be some spillover into Norristown, and the potential extension of K of P rail. If the local government could lower the cost for investors and attract new business to downtown, there certainly could be a demand for an urban community like Norristown in an otherwise suburban area. If you find a property that doesn't need much repair work, and you're interested in doing Sec 8, you could do very well from a cashflow perspective in Norristown, and hope the appreciation comes one day. If that happens, you'll look brilliant or investors may be asking the same question about Norristown 20 years from now. Proceed with caution.

Steve Babiak · Answer

@Jon Graboyes out if NY state seems to have a better idea of this town than those who are more local - who would've thought ...

About ten years ago I sold a house in the better part of Norristown, in the north side close to Johnson Highway. This past summer the people I sold it to re-sold it - for $20K less than they paid; and they had kept the house in good shape and even made some improvements. I don't think that indicates an upward trend ...

There was supposed to be some sort of movie production operation coming to the building that was once the "Ports of the World" location - I don't think that ever came to be. Seems that planned projects falter in Norristown.

School taxes are high, and the schools are highly rated - you'd think that paying more could get better performance. The public transportation routes have been there as long as I can remember, so nothing new there IMO. There is a plan to extend 476 - but who knows if it will bring any real results.

And so much of the town is classified as historic district - but the property values are so low that doing (expensive) historic restoration makes no sense.

Account Closed · Answer

Thanks for the shout-out @Jon Graboyes

Everything I experienced is reflected in what he says. There is an effort to improve Norristown and they have kept tax increases down for a few years however, their idea to improve the area was to require a U&O inspection every year for a rental license. I don't think they have a fundamental understanding of the issues. I bought a property ~6 years ago and I haven't seen any appreciation. Cashflow is ok but I had to invest double into the property to make repairs than my wholesaler predicted.

I want to make Norristown a safe place for families to live but there are some big hurdles.

Jon Graboyes · Answer

Account Closed Taxes in Norristown are high compared to the City of Phila; a $100,000 property in Norristown may be ~$3,000 p/yr in taxes compared to ~$1,000 p/yr for a $100,000 property in Phila. I suppose Norristown taxes are only slightly higher or comparable to nearby communities, but the Norristown school system is below average. You would pay less taxes to live in KofP and be in the better Upper Merion school district.

Account Closed · Answer

This has definitely been an enlightening thread. Not to hijack your post @Kevin H. but what would you veterans suggest as a good area for a newbie? I'm looking for cash flow versus appreciation. I'd like to self manage for a while to learn so the city seems a bit far from MontCo. But it seems taxes in the burbs are always going to be higher than the city. @Steve Babiak, @Jon Graboyes, Account Closed Thanks for the U&O details. Very helpful.

Steve Babiak · Answer

Account Closed - if you just want cash flow then just stay in your own back yard there in Pottstown; plenty of investors do just that, property prices are "affordable", a bunch of properties available too. Of course, the tenant base is what it is, code enforcement can be difficult, the properties tend to have been neglected (because people have to put more into repairs than what they might be worth) ..., etc.

Lana Lee · Answer

That are schools like in West Philadelphia ?And what are the tenants like? What rating would you give that area ?

Account Closed · Answer

Thanks Steve! In looking for rental comps I've seen you have some properties this way too. In general it just seems that outside the city the taxes are high where the prices are low. Have you found it tough dealing with the "historic" aspect of Pottstown/Norristown?

Account Closed · Answer

@Jon Graboyes Thanks for the insight. I know U&O is typically on the seller and plenty of listings say 'buyer responsible'. I needed one to sell my last primary home and know it's a pain point. I'll definitely have to factor that in to any of my offers.

Is Norristown PA, the next Hot Spot?

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