In my area it seems like just about every 2 unit multi has been converted to 3 units with an illegal 3rd floor “attic or in-law” apartment.
In general do you folks stay away from these properties when considering buying and holding?
What chance is there of requesting a zoning ordinance change (I’m sure it is different from area to area).
Since it is so common in my area, I am assuming the city kind of turns their back on it since it is, after-all, a valuable housing solution for some lower income tenants.
What is everyone’s thoughts on this subject? Does anyone have an experience to share regarding this?
You’ll want to be real careful on something like this. While some cities may turn the other way, you may run into problems with them and/or the lender.
I had a client who came to us after she purchased a ‘triplex’ which was later determined by the city that it was only a duplex and she had to remove the tenant who was on Section 8 from the property and the unit from the buildilng.
You would think that the appraiser, sales agent and lender on her purchase would have warned her but no, they just wanted to make the sale.
She’s now embroiled in a lawsuit to recoup the lost value of her property. She will never recover the time, money and attorneys’ fees lost on this deal.
I try to let people know that it is important to seek the advice of an experienced property manager before the purchase to determine what will happen after the transaction closes. The close of escrow signifies the end of the deal for everyone but the new owner for whom it is just the beginning.
Hope this helps.
Thanks for the insight. I have been told that the penalties could be providing up to 6X the unit rent amount to the tenant residing in the illegal unit, in addition to having to provide support in helping the tenanat move.
After further research, I found an online map showing the city zoning. Honestly there are no “residential C” zoning areas. Residential C would be multi’s above 2 units. From looking at the map, just about everything is Residential A or B which is single or multi’s up to 2 units.
What is strange is how the city just seems to allow it since there are hundreds of thousands of 3 unit multi’s which are in 2 unit zoning areas.
In addition, I have MLS access and the realtors list these properties as 3 fams and even document the third floor rental amounts. They sell like this all the time. I talked to a local friend of mine who is an appraiser and he said that “if” the appraiser does their job correctly then they will check with the city on how the property is zoned prior to appraising the property for the sale. He said no one checks and since MLS shows it as a 3 fam they just go off of that. He also said that if the appraiser does catch it then the seller will just remove or cover the kitchen plumbing on the third floor until after the sale so it looks like the intent is in compliance with the correct zoning. He also said that it doesnt matter since the owner could just say that the in-laws were living on the third floor and wanted their own kitchen area?!
My question is what happens if you have to evict a tenant from the “non-conforming” 3rd floor or, god forbid, the tenant gets hurt and sues?? What if the tenant is savey enough to recognize that the apartment they live in is not legal or as I like to say “non-conforming”???
Anyone else have any experience with this?
Even if the town ignores it the lenders might cause a stink about it. I have a town by me that has lots of these as well, I plan to stay clear even though the prices are good on these properties.
Are you speaking of Hartford or possibly Manchester?
I am up in MA and am referring to is Springfield.
My understanding is that Hartford is much LESS lenient on zoning ordinances than is Springfield. I don’t actively invest in Hartford so I don’t know the by-laws as well. Investor friends of mine down in Hartford have said that they won’t even consider a property unless the intended use is in line with the zoning guidelines. I guess it is an entirely different market but I can’t speak from experience.
In Springfield, if you pull an MLS report of all muli unit property listings…you will come up with about 800 properties on the market…not a single one is a legal 3 fam.
What’s even crazier is that the section 8 inspectors don’t even care. They will allow sec 8 tenants in an illegal 3rd floor unit provided there are two means of egress (sp). The zoning on the property is neither here nor there as far as they are concerned as long as the unit passes all of their requirments.
I just think it’s crazy that the city doesn’t regulate it in any way. You can actually have sec 8 paying rent on an illegal apartment.
This is probably the reason (one of the reasons) why properties are so much cheaper in Springfield vs Hartford. The same 3 fam in Hartford going for $250,000 would go for about $160-180k in Springfield yet it would technically only be a 2fam with a non-conforming 3rd unit!
I am referring to Waterbury, CT. Last time I looked on the MLS there were tons there.
In Springfield, you just need to find the zoning guys with “the crooked noses”…
I just picked up a forclosure from a bank and its an illegal 3 family. It was being used by the previous owner as a 3 family, it was being taxed aas a 3 family but code enforcement has it as a 2 family and thats all it will be. So a lady tried to buy it from the seller as a 3 family and the bank told her she cant because its a 2 family so the guy just let it go instead of fixing and renting it. I picked it up for 29k put 5 k into it and will do a 90% refi on an after repiar value of between 70-80k and have a nice rental gross income of about 1300 per month minus taxes mortgage and all that stuff will be a couple hundred a month positive net. Plus of course the 15-25k I pulled in cash at the refi. So I will put in a grievance with the tax department once all rehab is done since I knocked down the wall which made it a 3 unit and made a nice big 4bd/2bath apartment on the first floor. Hopefully lowering my taxes as it will now be taxed as a 2 unit and not a 3 so that will also increase monthly income. All in all not bad.
I’m a NYC landlord, and almost all 2 famiies here got a third illegal unit. Banks go by CO’s here, though in some cases they would not finance one where the illegal unit does not have 2 exits.
I have not heard yet of anyone complaining of buying a legal 2 with 3 units and asking for money back, since the CO’s govern.
In NYC, the municipal authorities here only respond to complaints, and due to understaffing, get on the scene months later, and find no one home. The former mayor stated that the city cannot shut down illegal units or hundreds of thousand of citizens would be homeless.
As to legalizing it, no chance. Zoning variances are required, and gets snagged on issues of traffic, infrastructure restraints like power, water, sewer, as well as overcrowded schools.
They cited one of my properties with an illegal unit, and I spent a few thousand dollars to file plans, and made the needed changes, and bought the property into compliance.
In the neighboring suburbs, they’re much more strict nowadays due to overcrowded schools and illegal immigrant problems.