Landlord - Real Estate Zoning question

[The Captain]

So I just found out one of the properties I'm interested in is not zoned multi-family as I was told (no Bonnie, it's a different one), but is a legal non-conforming property in a, get this, Commercial Zone (AB).

So if I understand the zoning rules correctly, assume it is more than 50% damaged.  I cannot rebuild a single family or multi-family residence but would have to build a commercial building with, at most, two residential units above the store-front.

I've got a call into out lawyer because I want to know if I can get coverage for insurance purposes, but does anyone here have any experience with this?

[swamp]

Yes I do. And its completely dependent on local and state law.

[bean29]

We have a mixed use commercial/residential building.  We can not convert it to a duplex but it can be SF or Commercial.  DH is an insurance agent.  His company will not insure mixed use buildings.  We do have insurance on it through an independent agent.  I think it is Zurich.

[Deleted]

Sept 17, 2013 13:39:20 GMT -5 The Captain said:

So I just found out one of the properties I'm interested in is not zoned multi-family as I was told (no Bonnie, it's a different one), but is a legal non-conforming property in a, get this, Commercial Zone (AB).

So if I understand the zoning rules correctly, assume it is more than 50% damaged.  I cannot rebuild a single family or multi-family residence but would have to build a commercial building with, at most, two residential units above the store-front.

I've got a call into out lawyer because I want to know if I can get coverage for insurance purposes, but does anyone here have any experience with this?

Lol, are you wondering about these great "deals"?

 You really have two questions to ask and I don't think your lawyer can answer either of them.

1. Can you get insurance coverage-ask your insurance agent
2. If the building burns down what can you build-you have to go to your planning and zoning department. And understand that no matter what answer they give you today it could change in the future depending on what the community wants/needs in the area.

I'm not sure where you are but in my neck of the woods there's always a battle between retail space (which generates sales tax) and meeting the State's affordable housing requirements. If you time it right, you can get a conditional use permit for what you want to build in our little downtown corridor.

[milee]

Sept 17, 2013 15:44:35 GMT -5 @bonnap said:

Sept 17, 2013 13:39:20 GMT -5 The Captain said:

2. If the building burns down what can you build-you have to go to your planning and zoning department. And understand that no matter what answer they give you today it could change in the future depending on what the community wants/needs in the area.

And if your zoning department works anything like the one here, the oral representation of the staffperson you speak to is not binding and even if you manage to get something in writing from the department, if the actual rules, regulations, etc are different, then they will not honor that representation of their staff.  In other words, you can't rely on what the staff tells you.  You need to have a copy of the exact regulations that relate to that - and I'd also get the opinion of a local attorney who specializes in land use - and make sure you understand the regulations regardless of what the staff tells you.

[Deleted]

For our area, it's not the staff, it's the NIMBYs. Any excuse to keep you from building or changing anything.

[tskeeter]

Sept 17, 2013 13:39:20 GMT -5 The Captain said:

So I just found out one of the properties I'm interested in is not zoned multi-family as I was told (no Bonnie, it's a different one), but is a legal non-conforming property in a, get this, Commercial Zone (AB).

So if I understand the zoning rules correctly, assume it is more than 50% damaged.  I cannot rebuild a single family or multi-family residence but would have to build a commercial building with, at most, two residential units above the store-front.

I've got a call into out lawyer because I want to know if I can get coverage for insurance purposes, but does anyone here have any experience with this?

Here is a consideration when you are thinking about a residential property in the middle of a commercial district.

A former employer bought a company that had a plant in an idustrial park.  Across the street was a little old house on a good sized lot.  A young fellow who owned a landscape contracting company bought the place because he could keep his equipment and some materials on site.  My former employer increased production and took the plant to 24 hour a day operation.  The young fellow gets married, moves his wife into the little old house, and has a child.  The child can't sleep with the constant semi traffic in and out all day and all night.  That is compounded by backup horns on lift trucks and a variety of other noise producted by a manufacturing plant.  One night Dad is at his wits end with a child that never sleeps.  (You've gotta suspect that the Mrs. was at her wits end, too, and mightly cranky about spending 24 hours a day with a tired, unhappy infant.)  Dad comes over and demands that the plant shut down so he and his family can get some sleep.  Yeah, sure, no problem.  It's only a disagreement and some shouting, until Dad pulls out a gun.  Dad gets a free ride to jail for assault with a deadly weapon.  Mom and baby don't get any sleep, either.

The moral of the story.  The property might be permitted for a non-conforming use, but it is likely to be hard to rent if it is the only residential property in the middle of a comercial area.  And you are unlikely to be able to get market level rent because the property isn't in an area where people who have choices really want to live.  So your tenants are likely to either be such low income that they can't afford to rent anywhere else, or the type of tenant that nobody else will rent to.  What's the point in renting to people who can't afford to pay decent rent, or who are undesirable tenants?  I'd approach this property with a great deal of caution. 

[The Captain]

Good points.  I've been researching (waiting on call back from lawyer) and speaking to my (very helpful) contact is the code enforcement department.<br>.<br>The property is clearly in a residential area.  In the early 90's the city finally put standard codes/zones in place in all areas in order to be able to designate enterprise zones and become eligible for federally subsidized bonds in those areas.<br><br>The zoning code required property along routes with a certain amount of traffic to be designated as commercial.  There was a "corridor" drawn (kind of like a setback) so many yards from the main road.  This property (and three others on the same side of the street) were "caught" in the re-zoning.  The commercial business along the main road is a paint store.  Based on the city zoning map, there are literally dozens of homes in the area that is now designated commercial.<br><br>Ahh, so much to learn...<br><br><br><br><br>

[muttleynfelix]

Read your local zoning ordinances.  If the property is clearly in a residential area, you can always try to rezone just to be sure.  The cost will depend on the municipality.  But we rezone properties all the time.

[bean29]

The building we own, DH bought to locate his office in.  He used it for about 6 years then decided his clients were really a couple miles south so he bought a different building.  We got a fairly good deal on the building, so even thought we keep the rent slightly below market b/c there is a foundry accross the street, we have never had issues getting and keeping tenants.

Builiding is vacant right now for remodeling, but the last tenants lived there 3 years.  We had another tenant in there 3 years.

This is not the only residential building in the area or the only mixed use building.  It is an older section of the city so there is a foundry on one side of the street and duplexes and storefronts on the other side.

[The Captain]

Ok, just spoke to the lawyer.  IF the worst should happen and the property was totaled we could go for a zoning variance.  I know politics etc plays into this but at the present time he indicates if you provide sufficient off-street parking (2 spaces per unit) the city will usually look favorably on a zoning variance (of course plans etc have to meet current building codes).  The property currently has 5 spaces for 3 units so it is only one spot short and there is plenty of space for an additional parking spot if the need should arise.

I also confirmed with him the property is insurable and the insurance company would pay out on any loss, regardless if we were able to rebuild.

[Deleted]

Make sure you put in your offer a contingency that you can insure the property even though it would be a requirement of getting a loan. I would be calling insurance co.s to confirm BTW

Are you still going through with the sale of the other building?

[The Captain]

Sept 18, 2013 10:12:15 GMT -5 @bonnap said:

Make sure you put in your offer a contingency that you can insure the property even though it would be a requirement of getting a loan. I would be calling insurance co.s to confirm BTW

Are you still going through with the sale of the other building?

On the other building, hopefully.  I'm still wrapping up my due-diligence and just got back a land use status report that indicates the property is NOT currently licensed as a rental, contrary to what we were told.  I'm trying to get that cleared up and hope is is just an error on the city's part.  I thought I had already checked on that when I was pulling a FOIA for code violations but the licensing status was not discussed.  Closing is set for 10/1 but I will push it back or cancel the deal if I'm not comfortable.

I've contacted my insurance company and the current property is already insured by them.  Apparently all they will need is updated leases and updated pictures.

[Deleted]

Captain,

I can't help but ask, how many properties are you planning to buy and have you been a LL before? You might want to space out these purchases to no more than one every six months. I think you're going to have some turn over and repair stuff to deal with shortly after you close. There's only so much time and effort you can put into these projects especially if you're still working...even with a PM.

Be careful.

[The Captain]

We are looking to close on two to start with.  After that I'd like to add one a year.

We have never been landlords but have 6+ months operating funds in reserve just in case.  Becaue of how DH's job is structured, he is basically off one day a week and we are hopeful that he will be able to manage most of the major things on those days.  If it gets to be too much we'll get a PM.  The properties are within a 15 minute drive from our home.

I'm looking at other properties in case one of these deals falls through.