All Forum Posts by: Patrick William

Thank you. Yes I know it's no guarantee by any means, especially in this town which has a reputation for being tightly regulated. There's no one I distrust particularly, but don't have anyone I particularly trust either. This would be my first foray into bigger 'developer-style' projects, previously have only worked in smaller multi-family renovations within the existing structures.

I'm leaning towards making a cash offer to the seller with a short-term contingency to explore basic feasibility. If it seems like a good chance it could succeed, it would move to a longer feasibility period/contingency-on-variance and we would take the risk in hiring an attorney, potentially an engineer/architect, etc. Otherwise we would be able to back out of the deal quickly with no penalty, say in 15-30 days or thereabouts. That's just my uninformed/inexperienced idea but it seems sound enough.

Thank you for the info. I was unaware of the term feasibility period. So if I understand correctly, the buyer makes an offer / signs a purchase contract with the condition that zoning approves the buyer's development plan, and if approved, the buyer is obligated to buy / seller is obligated to sell, as with a residential contract?

Is there anything that is done to protect the seller in the event that the buyer loses interest and makes up excuses to scuttle his own deal and back out of it? I know this can happen with any real estate transaction. I have no plans whatsoever to do that, just trying to get a basic grasp how both parties are protected while the potential buyer goes through the risk and expense of due diligence/rezoning, and the seller holds the property off the market.

This is  a little different than a typical office to apartment conversion since the underlying zoning is residential and there are multiple lots involved that are currently sitting under a single business/use. As long as the township approves, it's fully workable, but approval seems far from a guarantee.

Thanks. I have some experience with residential offer process but not much with commercial. What I meant is to make an offer contingent on getting the variance, just as a home offer would be contingent on inspection. That way even though I have no guarantee that the rezoning will succeed and might lose money trying for rezoning, if it does succeed I will have a right to the property. I'm assuming that's how it has to be done normally, or buyers would not go to any expense.

I own a property close by and have a fair idea of this property's value, what he would ask for on MLS, and what his bottom-dollar number might be. I have a partner who would be able to pay cash for the property so there would be no questions around financing. So seller would save money and time versus listing with realtors, etc.

The property is mixed-use with about 80% commercial use, and for a few reasons would not be a very attractive of a deal for a business who planned to continue that use; its main value by far would be redevelopment, but it's fair from certain this town would permit it.

Taxation shouldn't be much different. A friend has a mixed-use multi-family property in NJ with a pre-existing non-conforming aka grandfathered commercial use, and the taxation is comparable to residential. The main thing you need to be aware of is what a pre-existing non-conforming use is and how that use can be continued and lost/abandoned. In most places, if the use is discontinued for 1-2 years, it is considered permanently abandoned and the permitted use reverts to what is on the zoning map. That said, I believe enforcement of this is very rare in practice, and that the onus is on the township to prove the use was abandoned. Towns typically have bigger fish than this to fry, unless there is a personal beef involved somewhere or you are creating a major nuisance in the neighborhood.

When you say the zoning has been switched, is this actually the case or are you just referring to the tax card which says 'commercial' '4a-commercial'? If the latter, that refers to a grandfathered use, not zoning. Zoning is what is on the zoning map.

I am interested in purchasing a building with a plan to add a 2nd storey for apartments, which may be possible with a zoning variance.

The building is not on the market and relatively few people are aware it will soon be sold, and I have something of an inside track to the owner through a friend. It's in a high-demand area and would be a profitable deal if zoning approves. I think my plan for the property would be better for the neighborhood and a good case could be made for the variance.

Would it typically be advisable to just make an offer contingent on getting a variance and then after offer is accepted, explore the possibility of a variance with a township or attorney? As opposed to investigating and asking questions beforehand. I'm concerned that even speaking to the township or an attorney about it could lead to the wrong person being tipped off and create competition for the property.

I realize this is all specific to my case, but does anyone have any experiences or thoughts that could be relevant to this scenario / on the order of operations and how to best proceed?

You could be getting the Eddie Haskell treatment. On the other hand maybe rent is the only bill he puts as a priority, in which case you're fine? If everything is good except the credit score (maybe get a copy of DL and do a criminal / civil judgment check on him and the co-signer also, since those don't show up on credit reports anymore), you might just go off employment, followed-up job and landlord references, co-signer, and very landlord-favorable lease and payment terms. I manage a property and help screen tenants for a relative and a mix of factors has worked out, not always just strict, on-paper criteria. Hard to say one way or the other without seeing in person.

Bill's analysis seems pretty conservative to me. It also assumes no fixer uppers (which would allow you to save lot of money on the purchase price, probably more than 20%) and buying all units in perfect, operating condition. In NJ deals abound that can provide $200-400/mo per unit in free cash flow including single and multi. So to get there you'd need perhaps 10-20 units, on the lower end with apartments and multi-fam, on the higher end with SFR. Instead of trying to save up a mammoth amount, you'd surely be better off buying properties one by one, starting small (should be able to get something for $5-10k down), and adapting your financial strategy as you go forward and learn more about buildings, construction, expenses, tenants, etc.; you will learn by doing, and your ideas are probably going to change a lot between age 20 and 30. I'm not an investor myself yet but have worked with several for many years; just my two cents.