zoning quagmire duplex/triplex

[Aubrey K.]

Hey Everyone,
I am new to the real estate investing business and am looking to make an offer on my first property shortly. There is a particular property that I like, but it has some "issues" so I thought I would get some opinions from the pros.
The property: a duplex with 2 one bed/one bath units and an additional seperate unit they are calling an "in-law."
The scenario: My husband and I are first time home buyers, so we are looking to take advantage of the $8000 tax credit and buy income property at the same time.
The issue: We favor this particular property the most because of the location, condition, price and a motivated seller. The problem is twofold: 1) the property is not zoned for a triplex 2) the "in-law" was formerly a garage and the work done on it was never permitted. From the research my realtor has done, the city will not allow the property to be zoned triplex. If we were to buy it, I am aware that we should do so based on the income only from the duplex. If we made this purchase, we would live in the "in-law" apt and benefit from the full cash flow on the property.
Our concern: I am aware that many people rent units that have not been properly zoned, but I am worried about getting into something like this from the get go since it is not something that can be fixed. Also, I don't know how we would report the income without raising red flags (this will be a FHA purchase if it makes a difference).**What is interesting is that the property is right across from the police station and a block from city hall and it is obvious that the "in-law" is currently occupied.**
Obviously, the concern is what kind of situation could we find ourselves in if the city figures out that the additional unzoned unit is being occupied and what is the liklihood of that happening? Is this situation one that a newbie should avoid and if so, does that mean ignoring all properties with "in-laws"?

Any thoughts/opinions are appreciated!

[Matt Mathews]

Another View point! I just recently had a similar situation. I'm assuming by what you say: Property is zoned for 2units.and is on the City books as such? You also know that FHA has different loan requirements for purchasing Multi-Family property even though you want to live there? Since the 3rd unit isn't permitted-forget about rezoning. I've been there many times. Make your purchase based upon you living in one of the two units. Make sure, that is your intention, and follow through as such. The 3rd unit can be labeled a Granny Flat( no Stove/cooking built-ins). when you get your loan. An FHA inspector will check. In other words-It's not included as another full service unit. The bottom line is: Buy the duplex-live in one-rent the other.. The other unit and rezoning can take place later. When and If you can get the property rezoned-then move into that unit as you would like to do so now.