Author Topic: Risks of non-conforming duplex?  (Read 8378 times)

opnfld

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Risks of non-conforming duplex?
« on: October 10, 2014, 04:00:52 PM »
I'm considering a cash purchase of a charming 1923 craftsman fixer (1 story + daylight basement) for $260K.  I'll do all the updates myself over the course of two years while we live in the home and the house should be worth >$350K.  Upstairs there are 3 BDR, 1.75 BA, kitchen and laundry; and 2 BDR, .75 BA, kitchen and laundry downstairs. 

The property is zoned SFR, but I wonder about the feasibility of renting both the basement and the main floor.  Does anyone has a good sense of the risks around a non-conforming duplex?  Renting two units should generate $2,100/month.  The units are not separately metered - I assume they can't be considering the zoning...

Probably this is a non-starter in terms of a duplex, but I'd appreciate your input.  My wife doesn't want to live upstairs and rent the basement.


Northerly

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Re: Risks of non-conforming duplex?
« Reply #1 on: October 10, 2014, 05:42:28 PM »
I live in a large single family house that is currently functioning as a triplex, with the basement rented out and a studio apartment over the garage. Our MO is to be good neighbors and not raise any red flags. We also tell our tenants that they can't get mail there (so no extra mailboxes, Apt A/B/C, etc.)

In general terms, zoning is not enforced unless there is a problem to respond to. Municipalities don't have the resources to be zoning police. They only use the code when there's a big stink.

We could certainly have found a better cash-flowing triplex, but not one we'd want to live in.

If $2100/mo is the gross rent that you expect for both units, this place sounds like a terrible investment.

Setters-r-Better

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Re: Risks of non-conforming duplex?
« Reply #2 on: October 10, 2014, 06:08:05 PM »
I wouldn't do it unless I could get it rezoned. Would just buy a different property that didn't give me unnecessary anxiety.

smilla

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Re: Risks of non-conforming duplex?
« Reply #3 on: October 10, 2014, 07:07:31 PM »
Hey opnfld,

I put in a basement suite shortly after building even though my home is zoned SFR.  At the time (6+ years ago) the City was very lax about zoning infractions and I made sure I didn't raise any red flags (specifically, there is no separate entrance or utilities).  I once had a neighbour threaten to call in my "illegal suite" due to a tenant having too many vehicles parked on the street but I dealt with it and they relaxed.

Now however the City is cracking down and I am too nervous to get new tenants when my current ones move end of November.  I am a little tired of tenants anyway so it works and on the plus side, when I am ready to go a bit more hardcore mustachian, I can rent both basement bedrooms separately and make even more than renting a suite because "boarders" are legal. 

The house is set up to easily convert back to a one family home (with a small extra kitchen) so that's not an issue now or for resale.

My advice to you is, if in doubt you should NOT do it and you especially shouldn't do it if you won't also be living there (to do damage control).

But if you do:
1.  set it up so it can easily convert back to SFR. 
2.  don't raise any red flags. 
3.  make nice with the neighbours and make sure your tenants will be good neighbours. 
4.  make sure you have enough on-the-lot parking or that your tenants have only 0-1 car per unit.

smilla

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Re: Risks of non-conforming duplex?
« Reply #4 on: October 10, 2014, 07:18:54 PM »
Our MO is to be good neighbors and not raise any red flags. We also tell our tenants that they can't get mail there (so no extra mailboxes, Apt A/B/C, etc.)

In general terms, zoning is not enforced unless there is a problem to respond to. Municipalities don't have the resources to be zoning police. They only use the code when there's a big stink.

+1 

This is definitely how it WAS in my city.  It might be an idea to talk to local builders or realtors and see how they read your city's enforcement of bylaws.  They should have an idea of how easy-going or not things are.

Practical Magic

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Re: Risks of non-conforming duplex?
« Reply #5 on: October 10, 2014, 09:03:04 PM »
When I was looking to purchase SFR investment properties I learned that, at least in our area of the PNW, if a SFR was already being used as a multi-family and there hasn't been a one year or more gap since it was a multi-family, the new owner can continue to rent out both units. We ended up buying 4 two-unit properties in a town with a large renter base (military, college, and medical workers). Note that, though they each had two units, they were officially single family residences.

My story about getting reported to the City for turning one of the houses into a duplex:
We remodeled the apt downstairs in a 2 storey house. It hadn't been used as a rental unit in the recent past, and instead the owner had used it as an art studio. We didn't let that stop us, however. We did some work and turned it into an attractive 1 bedroom/1 bath unit, found a tenant and rented it. We made the mistake of adding an extra mailbox on the street, which is what tipped off a neighbor and they complained. I received a letter from the city and the first thing they made us do was vacate the unit. So my nice tenant moved out and then it took a couple months for an inspector to look at the unit to make sure it was an acceptable dwelling. Afterwards they deemed that it was a fine dwelling unit and said we could rent it to a new tenant, HOWEVER, the new tenant had to be on the same lease as the upstairs person. That small distinction was key to solving the problem.

It worked out that the upstairs tenant had a friend who needed a place to rent, so I created a new lease and they both signed it. They have separate electrical meters, so they pay their bills separately. The arrangement has worked well and is still in place after 7 years!
« Last Edit: October 10, 2014, 09:09:45 PM by Practical Magic »

Setters-r-Better

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Re: Risks of non-conforming duplex?
« Reply #6 on: October 12, 2014, 07:19:05 AM »
Hey opnfld,

I put in a basement suite shortly after building even though my home is zoned SFR.  At the time (6+ years ago) the City was very lax about zoning infractions and I made sure I didn't raise any red flags (specifically, there is no separate entrance or utilities).  I once had a neighbour threaten to call in my "illegal suite" due to a tenant having too many vehicles parked on the street but I dealt with it and they relaxed.

Now however the City is cracking down and I am too nervous to get new tenants when my current ones move end of November.  I am a little tired of tenants anyway so it works and on the plus side, when I am ready to go a bit more hardcore mustachian, I can rent both basement bedrooms separately and make even more than renting a suite because "boarders" are legal. 

The house is set up to easily convert back to a one family home (with a small extra kitchen) so that's not an issue now or for resale.

My advice to you is, if in doubt you should NOT do it and you especially shouldn't do it if you won't also be living there (to do damage control).

But if you do:
1.  set it up so it can easily convert back to SFR. 
2.  don't raise any red flags. 
3.  make nice with the neighbours and make sure your tenants will be good neighbours. 
4.  make sure you have enough on-the-lot parking or that your tenants have only 0-1 car per unit.

Seems like that would qualify as having a roommate which I figure is legal everywhere.

opnfld

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Re: Risks of non-conforming duplex?
« Reply #7 on: October 13, 2014, 03:02:32 PM »
thanks for your these responses.  the first hand accounts of how something like this plays out are really helpful.  The duplex idea was Plan C.  Plan A) stay in the house (with our without refinancing)... or Plan B) sell.  We didn't make an offer on the house; our time frame to purchase is flexible and I didn't want to sell a bunch of index funds this week.

If $2100/mo is the gross rent that you expect for both units, this place sounds like a terrible investment.
I realize it's not a great investment, but I'm curious why you think it's terrible?  2,100 monthly on a $262K purchase comes within .02% of the 1% rule.  I assumed i would finance the place if it made sense.  It's not going to happen either way, but what am I overlooking in evaluating the investment-worthiness?

Northerly

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Re: Risks of non-conforming duplex?
« Reply #8 on: October 13, 2014, 03:13:15 PM »
thanks for your these responses.  the first hand accounts of how something like this plays out are really helpful.  The duplex idea was Plan C.  Plan A) stay in the house (with our without refinancing)... or Plan B) sell.  We didn't make an offer on the house; our time frame to purchase is flexible and I didn't want to sell a bunch of index funds this week.

If $2100/mo is the gross rent that you expect for both units, this place sounds like a terrible investment.
I realize it's not a great investment, but I'm curious why you think it's terrible?  2,100 monthly on a $262K purchase comes within .02% of the 1% rule.  I assumed i would finance the place if it made sense.  It's not going to happen either way, but what am I overlooking in evaluating the investment-worthiness?

While there a lots of places where you are doing well to satisfy the 1% rule, there are also many places where you can attain 1.5%, 2%, or better. http://www.mrmoneymustache.com/2011/10/10/lets-buy-a-foreclosure-episode-2-what-is-the-50-2-rule/

There may be some soft factors that are playing into your calculus, but from the numbers, it just doesn't seem very good. Perhaps terrible was a strong word, but coming from a city where 2% is attainable, going below 1% here would be a bad decision.