CMX-3 in Philadelphia as MFH?

Question

Hey BP Community,

While putting an offer together for a property within the city of Philadelphia I realized that it was zoned as CMX-3. It's being marketed and sold as a legal duplex with CMX-3 on the MLS, and has had previous tenants (i.e. both units are completely livable, do not look like commercial space) although it's vacant at the moment.

hen I saw this, we added a zoning contingency to our offer. The seller's agent is suggesting this isn't a problem at all, that we should drop the contingency (which alone is an...interesting...response), and provided a recent Rental License (document title Certificate of Rental Suitability) that was issued by the city of Philadelphia that shows the address, rental license number, date issued (12/31/21), expiration date (3/30/22) AND the number of licensed units (zoning) as 2.

I've already reached out to a lawyer to inquiry further, which our Agent agreed was the best move too.

Based on the fact that they've rented this unit out before, I feel confident that I'd be able to figure it out and rent the units......what I am worried about is that in the transfer of the real estate from previous owner to me, the city notices/has questions/something/etc. and requires us to get a permit (or a variance?) to continue renting and that process could take who knows how long where I'm now not able to rent out one of the units and the holding costs become really high.

Anyone run into this before?

Austen Mueller · Answer

Good question.

Speaking to an attorney is always a good idea. I'm sure other people have some valuable insight into working with the city of philadelphia I'm sure I could benefit from as well.

In my experience Philly zoning and rental licenses can be a pain when working with the city when transitioning ownership. In my experience it depends on who you are talking to. We went under contract on an occupied duplex with all separate utilities, professionally managed, and had docs in https://atlas.phila.gov/ indicating its legal use as a duplex. My buyer still spent months getting the new rental license because he had to show proof from the seller it was a 2unit. What this "proof" actually was kept changing. Unit all he needed was a signed doc from the seller saying. "Its a two unit." All because the previous owner let his rental license expire in 2013 and then the headache fell on the buyer. Good news was it didn't affect him collecting rent.

In short, I would make sure he has a valid rental license and associated docs in Atlas.phila.gov align with what they are selling for starters.

Also.... On the CMX-3 zoning. @Joshua Messinger you know better than I do, but I believe CMX-3 zoning or above will be needed for STR's in Philly if you are not using your primary residents. @James Corr Not sure if STR's are part of your investing strategy. With new Philly laws making it harder for STR's to operate. The fact you are zoned CMX-3 could be a bonus/value add to the deal.

Best of luck with the deal. Let us know how it goes!

Eric Greenberg · Answer

Some great info above. Ive been burned before and found its best to call L&I directly and talk with them about what it shows in their system. Never a bad idea to call them on two different days/times to get input from two different folks.

James Corr · Answer

@Austen Mueller Account Closed

Thank you for the insightful and thoughtful response; I really appreciate it! It looks like this seller had an active rental license until earlier this year, so that's a good sign. They have provided Rental Occupancy certificates that say the building has two units to be rented by the City of Philadelphia too.

We did end up getting good direction from our lawyers. Due to the transfer of ownership in the sale we will need to get a new rental license issued to us and see three scenarios:

1. We submit and the city approves with no problems as duplex despite the CMX-3 zoning (this would be ideal, I'd like to do LTR for this at the moment)

2. There's pushback and let us know we need a variance to rent out the unit due to the zoning (not ideal, biggest risk), and we'd have to work with the city to get this permitted properly for long term renting. Loss of rent during the process, which could take anywhere from 3 - 6 - 12 months or longer.

3. There's pushback on the long term rental, and we pivot to short term rental. Due to the CMX-3 zoning, this property would qualify and we'd go down the path of getting it permitted for that use case instead of LTR, which provides an alternative to #2. above.

In addition to knowing and understanding the courses of action above, we've put $20K in escrow to be released when our rental license is issued post close. While it's a small % of the overall sale, it does represent some incentive for the seller to at least help if there's something holding us up that they can help with.

@Eric Greenberg that's a great idea; I'm going to call L&I. I've never called before, would you just generally ask what they have on file? ANy specific questions you'd ask?

Account Closed · Answer

Hard to say without looking at the exact property, but a two family use could be allowed without a variance in a CMX-3 property.

Rental license doesn't mean much as far as if the variance is really allowed for the property.

You can check atlas.phila.gov to see all the previous zoning docs.

Henry Berenato · Answer

Shoot me a call if you want.

James Corr · Answer

@Eric Greenberg hear you on that! Thanks for the direction here, I'll let you know how the call(s) goes.

CMX-3 in Philadelphia as MFH?

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