Multi-Family Conversion: Is that my driveway?

[Myles Bradley]

Hey All,

Brand new REI here! My wife and I made an offer on our first multi-family home in southern CT that we will occupy. We're discovering a bit more about the property during due diligence and wanted to share the scenario for any feedback/ thoughts from any who'd care to chime in (apologies for the length)!

Details

• Legal 2-family, 3 story home with 1st floor (2 br 1 b), 2nd and 3rd floors are 1 unit (5 br, 2 b) that used to be 2 separate units (each floor has a kitchen, front and back separate egress)
• 1st floor tenant just signed a new 12 month lease $100-$150 below market
• This is more attractive to me as a 3 family so I’ve been trying to figure out what it would take to convert it. City Housing Dept. has been surprisingly responsive to confirm it’s a legal 2 family home but shying away from answering: what it would take to convert or if we would be able to rent separately as a non-conforming property
• As a 2 family home, we can get close to expected rental income of 3 family (~$100-$200 less), assuming future tenants would be willing to live on floors 2 and 3 when there are a similarly sized 4-5 bedroom single family homes in the area
• One of the requirements for a 3 family (and I think the main hurdle we’d need to overcome) is the need for 3 off-street parking spaces. There isn't a private one currently but looks to be space to add in the future. Today we found out that a shared driveway exists behind the house that is split with 3 properties. The house in question has been the only one using the space for the last 30+ years

Questions/thoughts

• Should we proceed with the expectation that we can rent as 3 separate units? I’ve talked to a few realtor/investors who rent non-conforming units separately in the area. “Everybody does it”.
  • I’m pretty risk averse and not too excited about the thought of being fined/forced to vacate someone quickly
• After reading through the city codes (not a lawyer or home inspector) in an attempt to figure out what’s needed, my best guess of next steps would be
  • Driveway: knock on neighbors doors to see if they’d be willing to sell their share of the driveway
  • Reach back out to City building inspector and push on the conversion piece calling out the update on the driveway which I haven't shared (I feel bad for current owner that my questioning may put them on the city's radar in the case the house isn't to code but would want an answer before signing)
• In the case we can’t get a definitive answer:
  • Continue purchase and rent as a 2 family. We lose out on a year of renting a third unit as planned, but would be near whole next year when we move downstairs and rent out the top unit (Cash on Cash drops ~1% with lower rent and higher vacancy)
  • Walk away. We’re only looking at 1 town and there’s not an overwhelming amount of multifamily activity over the last 10 weeks of looking. Not concerned about backing away but want to give it a full shot to see if we can “make it work”!

This was the best I could do to make it brief, appreciate any thoughts or guidance if anyone made it to the end!