Should I invest in a Multi-Family if the Zoning Changed?

Question

Hey BP Pros!

I am trying to figure out if I should purchase my first multifamily property and I am looking in Rochester, NY. However, I noticed that the zoning for the properties that I want is all R-1 Low Density Residential. Is it not risky to buy a legal, yet non-conforming investment? What happens if you are in-between tenants and have to do some permitted renovations? Does the loss of the certificate of occupancy now render your property illegal?

I hope there are some experienced with these types of issue that can put my mind at ease! I just called the City Zoning Department and they basically said that it is legal, until it isn't. Which does not really sit well with me.

Looking forward to the feedback!

Respectfully,

Anthony M. Hamza

Josh Robertson · Answer

Whether or not you should invest in a property that has become a non-conforming property due to zoning changes is, of course, ultimately up to the investor.  With that understanding, some clarity may be provided on the issue by reviewing the statutory language that will be applied to the hypothetical scenario.  In this case the statutory language is found here: https://ecode360.com/8679476#8679496.  That is a link to the City of Rochester, NY's governing code.  That link specifically direct you to, "§120-3 Applicability."  This section discusses the fact that the zoning requirements, while broadly applicable, are limited to prospective property uses and not retrospective property uses.  Meaning, if you make the investment in the, now, non-conforming use property, and handle all of the business associated with the non-conforming use property according to another section of the City of Rochester, NY's governing code, then the property you are looking to invest into will not become, "illegal."  It will simply remain a non-conforming use.  With that said it is important to review the language, referenced in the paragraph immediately above, that will and does govern non-conforming use properties that are seeking to continue in the non-conforming use.  That language is located here: https://ecode360.com/8684035.  That link specifically directs you to, "Article XXIV Nonconforming Uses, Structures, Lots and Signs."  All of the sections in that article are worth reading and reviewing.  However, based on your question you will most likely be best served to spend time really digging into the following sections: §§120-198: dealing with the purpose of the article generally, -199: dealing with nonconforming uses generally, and -200: dealing with nonconforming buildings or structures generally.Summarizing those sections will leave you with, basically, the answer that the county's office gave you.  The nonconforming use will remain able to be utilized until it is no longer able to be utilized.  This is the eventual outcome because of how the statutes have been drafted and enacted.  Basically, as stated in §120-198(c), "The regulations of this article are intended to restrict further investments that would make nonconformities more permanent in their location in inappropriate districts as well as to afford opportunities for creative use and reuse of those other nonconformities that contribute to a neighborhood and are consistent with the goals of the Comprehensive Plan."  So the city government is expressly trying to eliminate, over time, nonconforming uses of properties within the zoning boundaries established.  Thus, it is safe to say that should you invest into a nonconforming use property it will be a matter of time until the nonconforming use of that property will be disallowed and a conforming use of the property will need to be implemented.  The other sections that are worth reading, as cited above, basically serve to outline what the situations are in which the nonconforming use will be  allowed to remain and in what situations the nonconforming use will have to be replaced with a conforming use.  It is important to note that in any of the cases the nonconforming use will not be allowed to increase and will only be allowed to maintain the current level of nonconforming use.  Meaning, if the multifamily property you are looking at investing into has 5 units and you wanted to change that and make 6 units, that is a nonconforming change that would not be allowed because it creates another unit, thus expanding the nonconforming use of the property.  In such circumstances it is extremely likely that certificates of occupancy would not be issued and until such a time as a conforming use was implemented or the previous level of nonconforming use was attained the property would not be able to be utilized for investment purposes.  In all of this, if you are unsettled with this potentiality then it will likely be better for you to find a different zone in which to invest, or to potentially modify the investment strategy that you were thinking of using within the zones where you want to invest.

Anthony Michael Hamza · Answer

@Josh Robertson first of all, wow! Thank you for your very thorough response! This helps clarify the issue a bit more for sure. I will read into the references you provided. Thanks for steering me in the right direction.

Respectfully,

Anthony M. Hamza