All Forum Posts by: Edward Schenkel

What Every Real Estate Investor Should Know About the Different Types of Land Use Permits

Every real estate investor should know the basics about land use permits. Sure, many investments will be residential buildings or multi-families where there will be no change of use after the purchase, but many investors will eventually get involved in bigger commercial acquisitions. This is when you may have different commercial tenants coming in and looking to (in addition to paying a great monthly rent) change the use of the space or perhaps want to develop another part of the property for the intended use. This is where a basic understanding of whether a land use permit will be required is important. Of course, consult an attorney, but understanding the differences between permits and what is involved can help you make good business decisions about commercial tenants. This post will provide some background about some of the common types of land use permits that every investor should know.

• 1.  Special Permit

A use of property is typically designated by a town as “permitted,” “not permitted” or “permitted by special permit.” If a use is permitted, you generally will not need a permit (except perhaps a zoning permit if you are developing the property, as discussed below). For example, if an accountant’s office is a permitted use in a B1 zone, you generally do not need a permit. If, for example, auto shop is not permitted, then you cannot lease to that tenant (unless you get a variance, discussed below).

However, many uses are special permitted use, which means the use is permitted if you satisfy certain requirements. A public hearing will be required before the Planning and Zoning Commission and the applicant (which can be either the landlord or prospective tenant) will have to demonstrate that the proposed use will not adversely impact the neighborhood / public health and safety. Every town has a list of special permit criteria that the Commission will evaluate to determine whether the use should be allowed, but generally these criteria include thing such as impact on traffic, whether the use is in harmony with the other uses in the neighborhood, septic and environmental impact, noise, and related criteria. Sometime experts are required to testify on the impact of the use which is not cheap.

Therefore, if you are thinking about leasing or developing for a special permitted use, you should realize that there may be a several month and costly process to obtaining the required special permit. The landlord may require the tenant to pay such costs but the tenant is going to require some sort of contract or contingency that the landlord will hold the space while going through the special permit process. These are things to consider before leasing to a tenant that requires a special permit; however, for the right tenant, it could be well worth it.

• 2.  Variance

A variance application requests that the town or city create an exception for the intended use even though it is not permitted under the current regulations. Variances come in two forms – use variances and height / bulk variances. A use variances asks that the town to allow a certain use in a zone that is not permitted by the current regulations. A height and bulk variance asks the town to allow an exception for regulations for setbacks or height. For example, a variance would be required if a proposed use needs a larger building than allowed under the current regulations.

Variances are not easy to obtain and the applicant will generally need to demonstrate that he or she would experience a hardship if the variance is not granted. The hardship cannot be self imposed, but is generally a hardship that is due to the unique shape of the lot or a hardship imposed by a change in the regulations, such as the creation of an undersized lot due to regulation amendments.

Therefore, if a tenant wants to use or develop the property in a way not permitted by the regulations, a variance application is an available avenue. Variances are not easy to obtain but can be effective in requesting an exception from the regulations.

• 3.  Zoning Permit

A zoning permit is typically required where you are developing or using a property for a use that is permitted, but are changing something (either through development or a creating a more intense use). The zoning permit will make sure you have the necessary parking and comply with any other requirements. For example, if a medical facility is permitted on a 2 acre parcel and you are building a medical building, you will likely need to obtain zoning permit to show that you have adequate parking and comply with other specific regulations for this use. Once the town recognizes that your plans have the required parking and comply with all regulations, you will receive the zoning permit.

If anyone has any questions about permits needed for real estate use / development, feel free to ask!

Happy new year to all.

Ed

@Jessica Freesia - good question. From a legal perspective, I would recommend creating a new LLC for a new flip. I would not use the LLC you are holding properties. The reason is that if something went wrong, the only asset the new LLC would have is the property being flipped (or no assets if the flip is complete). If you used the old LLC that has properties, someone could try to go after your properties being held by that LLC.

I cannot speak to every state, but you should be able to use a foreign LLC (LLC created in another state) to do the flip in a new state, but you likely have to register the LLC to do business in that state. The fees for registration may vary and it may in some instances make sense to set up a new LLC in that state. You can call the secretary of the state of the particular state to ask about registration and fees.

You should also run your plan by an accountant to make sure there are no tax surprises, but I think you should be ok. Any other questions feel free to ask.

In short, do not use an existing LLC that holds properties to do new flips out of state. Create a new LLC for the new flip.

Ed

 @Mack Bailey - The answer to your question may lie in the local zoning ordinances. The local zoning ordinances talk about what accessory uses are permitted in particular zones. Such as an in law apartment, a dentist who wants the first floor of his home to be his practice, etc. So I think you should check the local zoning code and also check the definition of accessory dwelling unit if you are thinking about creating a new unit in your house with appliances, etc.

However, if you are just looking to rent a room in your house, you should be ok, although in a few towns there are zoning regulations that limit rentals but if you are just looking to rent out a room in your house, you are likely fine.

In short, if you are creating a new unit check the zoning. If you are just renting out a room, you are likely ok, but double check the zoning anyways.

 @Mack Bailey what do you mean by Adu, accessory dwelling unit?

Hey Biggerpockets. I have been asked so many great questions both here and outside of BP. I made a list of some of the great questions and I am going to try to post more frequently on popular issues. I was recently asked about things to be aware of when purchasing foreclosures. There are a lot, but here are some important ones. Happy holidays, and if anyone has any specific questions, ask away. 

The Top 5 things That Every Investor Should Know About Buying Foreclosures

Buying foreclosures is a great way for real estate investors to get bargain prices on properties. However, there are certain things that every investor should be aware of before buying foreclosures.

• 1.Foreclosure Auctions can be more complicated than you think. There are additional steps after the winning bid before you can close. Buying Properties from Strict Foreclosure is Easier.

In Connecticut, there are two types of foreclosures. If there is equity, the court will order a foreclosure auction and the property is sold to the highest bidder. If there is no equity or the property is underwater, there will be a strict foreclosure, where the owner and interest holders prior in right to the bank will get a chance to redeem the note, and if none do, the bank then becomes the owner.

From a legal perspective, it is easier to buy foreclosed properties that have been foreclosed through strict foreclosure. When the bank takes title by strict foreclosure, the bank owns the property and can enter into a contract with you directly at hopefully a bargain price. Buying a property already owned by the bank is easier than going through the auction process.

If there is equity, the court will order an auction where anyone can bid, including lienholders, the owner, other investors, and so forth. At the auction, the highest bidder wins the auction. However, all investors should know that is not the end of it. The proposed bid has to be approved by the court as reasonable, giving other parties (including the owner) a chance to object to the bid. Usually the court approves it, but not always. Then you may have done a lot of work for nothing. If the court does not approve the bid, another auction will take place.

Both foreclosure sales and strict foreclosures are good opportunities to get good deals. Investors should know that buying foreclosures after strict foreclosure instead of at auctions is a much easier process, and perhaps less risky.

• 2.The Property will be Sold As Is and No Disclosures. The Inspection is critical.

The inspection is always important and is particularly critical for buying foreclosed properties. The banks will typically not provide condition disclosures and even if they did they would not be worth that much since the bank does not have extensive knowledge about the condition of the property. Similarly, the bank will not make any warranties as to the condition of the property and will sell “as is.” Therefore, the inspection is critical when purchasing foreclosures. Make sure you use a good inspection company.

• 3.You will likely Not Get a Warranty Deed

The bank is usually unwilling to provide you warranty deed, which provides you with certain warranties concerning the title of the property. You will likely receive a special warranty deed or a quit claim deed, which provide you as the buyer with less protection. Therefore, title insurance is critical when buying foreclosures.

• 4.The Tenants may have the Right to Continue to Occupy the Premises

If there are tenants in the building or house, they may have certain protections depending on whether the lease is written or oral, the duration of the lease, and when the lease was executed. In short, you may be stuck with the tenants in the foreclosed properties until the end of the lease term in certain scenarios. This is something you should look into with the help of counsel, especially if you are planning rehab.

• 5.Tax Liens and other Liens on the Property – Beware.

When purchasing foreclosures, only liens subsequent in right to the bank’s mortgage are extinguished. Therefore, prior liens, particularly tax liens, may still remain on the property after the foreclosure. Make sure you look into this and factor it into your decision to purchase. 

 @Scott Wolf, there is no mediation available for commercial so that is a big plus in your favor. However, from my experience, owners of commercial properties more often than not have money to retain an attorney and there are more clever arguments to try in commercial foreclosure defenses than residential. So my answer is it depends, but typically commercial are faster since there is no mediation available. If you have any specific questions, ask here or message me. I would be happy to help. 

@Yedwin Sanchez, let me know whether you have any legal questions. For property managers, I recommend 

@Filipe Pereira, he does a very good job for clients and is very professional. 

@Nelson Del Castillo -  I work with investors of all levels and help through all sorts of complicated deals, including subject to financing deals. I would be happy to help you. 

I have a client, a small real estate investment company, that is seeking off market commercial properties (retail, office, or mixed use) in excess of 100 million dollars. This investment company does not need to use a mortgage. No specific requirements - will look at any properties in excess of 100 million. Preferably in Connecticut or New York, but will consider anywhere in New England. Great opportunity to work with a serious client. Please message me with any opportunities.

Hello @Roman Ustoyev

I am an attorney licensed in NY and CT. The vast majority of my practice is in CT though. 

From a liability perspective, it should not matter whether you create the LLC in NY or CT. If there is a dispute concerning the property, CT law will apply as the law is for real estate matters is that you go with the law where the real property is located is.

If you have a desire to keep your identity private, as some investors do, I would recommend setting up a CT LLC with another state LLC as the sole member (DE is a good one). If you create your LLC in NY, then you need to register to do business in CT which requires providing the Sec of State of CT with the members of your NY LLC.

I would also consult with a tax / accounting professional and look at the fees to creating in NY v. CT. This may also factor into your consideration. But from a liability standpoint, it does not matter. 

Any specific questions feel free to message me or ask here.