Duplexes Celebrate Non Conforming Use Week

said on May 14th, 2010 categorized under: Financing

punk girlSometimes my days and weeks feel like it’s Spirit week in high school. You know those weeks; the ones where you dress up as something different every day to celebrate something which may or may not be significant.

Back then, I might have celebrated ’60’s day. Punk rock day. Or nerd day.

In real estate, however, sometimes I celebrate suburbs day. Or short sale day. Or multiple offer day. And just like in high school, I like some more than others.

This week, I had the chance to dress up for non-conforming unit day.

A non-conforming rental unit is usually found in a property not zoned for a multi family dwelling like a duplex or triplex. These are usually found in the basement or attic of an existing property, and may or may not conform to local building codes.

These units are often very nice, and it’s hard to imagine anyone not wanting to live there. Their best feature, however, is the additional revenue they generate for the property owner.

There are, however, a couple of problems with them, the most important of which is the bank will not allow you to use the income from them to qualify for a the loan to purchase the property.

The theory goes that a city inspector may discover the unit and force you to remove it, thereby causing you to lose the revenue it generates. And a tenant may well be the one who told the city about the “illegal” use.

The city may do so due to the duplex not being zoned for multi-family property, or for improper workmanship, lack of proper permits and so forth when it was constructed.

This doesn’t mean the building itself is ineligible for financing, however.

To qualify, the appraiser must provide at least two comparable sales with similar illegal use to demonstrate this use is typical to the area. In addition, in the even the property is damaged or destroyed, it must be able to be rebuilt to its present status.

A single family home may also face such a challenge if it has a mother-in-law apartment or guest house. It must also conform to zoning requirements and provide comparable sales of two similar properties.

Sure hope next week’s theme is let’s all buy a duplex!