Should I get involved with a MF in a SF zone?

[Jacob Wyatt]

Hey BP!

I stumbled across a triplex in the Tacoma/Lakewood WA area with an asking price of 375k. The owner claims that rents for his units are 1200, 1200, and 1400 (a duplex 3/1 and a small 2/1 SFH). I noticed that closing has fallen through 3 times. I looked at the zoning map and the property is zoned SF, which I assumed was part of the reason for not closing, so I called the listing agent and he confirmed that suspicion. He told me that since it is zoned SF that only one of the units can be used for income qualification on loan. He also informed me that the upstairs unit is currently vacant since they were thinking an owner-occupant would buy the property and that the other two are rented out at 1200/mo with 1000 of that being payment and 200 of that being labor the tenants are doing. Both of the currently rented units are month to month, as well (which I know banks like to see 12 month leases if you want to use the rental income to qualify for the loan). It looks like a nice property with two of the units being newly remodeled but it obviously has its concerns.

What is your experience with buying a MF property on a SF lot? How can they get away with that, legally and with insurance on the house? 

The numbers seem to be good for a turn key in this area. Also, knowing I can probably talk them down significantly with it being listed for a couple months already, if things ever got that far.

Any advice would be greatly appreciated!