SFH converted to a duplex advice

[Derek Wheeler]

Hello!

I am currently under control on a duplex in Arizona and I came across information that I am concerned about. The property was originally a single family home converted to be a duplex and was never permitted to be so. I was curious what are the possible risks I may run into once I close on this deal?

Thanks in advance!

[Karissa Sampson]

One risk would be that if you rent it out as separate units and the city finds out, they could shut you down. No reason for the city to find out really unless your tenant or a neighbor gets pissed off and reports it, but its a risk you run. If they allow you to go through the permitting process and renovate it to code, it will probably be more costly to do so if this is an up/down duplex with the downstairs being a basement vs a side-by-side.

Also, consider utilities. If its an illegal duplex, more than likely the utilities are all shared and you will need to pay them as the landlord and incorporate that cost into your rent. You'll also have to figure out how to deal with tenants who abuse utilities (leave water running, crank the AC/heat, etc.) because the cost will be yours to pay.

Check your city and county zoning for the property. If the zoning allows for multifamily, then even if the property is still technically a single-family, then there is the opportunity for you to go through the correct channels to legally turn it into a duplex. If that's the case, you'll need to decide whether to approach the city right away and see if they will work with the arrangement you already have or if they will force you to tear the drywall and everything out so they can inspect from the beginning ($costly$)

If its zone single-family only in an entire neighborhood of single family, then the city zoned it that way for a reason and will be unlikely to approve a spot zoning change for your property. If there are multifamily/mixed use zones nearby, you will have a better chance of getting a rezoning application approved.

Are you planning to live there? If so, can you make the other half of the duplex a legal ADU to rent while you occupy the property? (although commonly you will not legally be able to rent both units, main and ADU, both out once you leave the property)

Do your numbers still work if you can only rent it out as a single family? What kind of individual or family would want to rent it out as-is?

During your due diligence period, you can bring this up as part of your inspection objection and ask for seller concessions/lower price etc. because its not a legal duplex. However, if the market is hot enough, it might not matter that its illegal (doesnt matter to people in my area, they'll cough up the money)

Or you could say, screw it all, and just rent it out as if its a duplex.