Denver Under Contract on Triplex! Referrals and advise welcome.

[Michael C.]

Sometimes life is crazy with how fast things happen!

Literally looked at our first unit in person, been watching the market/mls for alittle while, this one looked interesting and I like the area so we went and looked at it with listing agent. Owner was present we talked for a bit he liked us. Well now we are under contract for $120k under list price. It needs work and will be a live in BRRRR.

I didn’t have my whole team built yet so looking for some help. 
1. Can anyone recommend a good property inspector for an older home?

2. Anyone local do VA rehab loans? Is that still a thing? Or any other good lenders? Currently started working with first bank.
Trying to explore my options, but the property needs work so I don’t think VA or fha will work. Only rehab, 203k, or conventional (I can put 25% or more down but don’t want to if I don’t have to). 

3. Any other recommendations for a newbie?

[Steve K.]

$120k under list price?! That sounds awesome! Especially incredible in this market where most properties are selling for way more than asking price. How did you negotiate that? There are many good inspectors in Denver, I like Inspections Over Coffee (formerly Hero). As far as financing goes, your best bet is probably a mortgage broker who can help you shop around and determine the best option. Typically the listing agent requires proof of funds or a prequalification letter from a lender before accepting an offer so I'm surprised they didn't ask for that. As far as other recommendations for a newbie, I'd recommend working with a buyer's agent for your first few deals if you don't have experience. Keep in mind that on a listed property the buyer's agent's commission is already baked into the deal and paid for by the seller, so you could have full representation for free. In Colorado dual agency is illegal so the listing agent is most likely a fiduciary to the seller (or a transaction broker who is not a fiduciary to either party, which is unlikely if they are already the listing agent). It's impossible for the listing agent to simultaneously get their seller top dollar and also look out for the buyer's best interests. Just be aware of the inherent conflict of interest there and know that their role is to get the best price and terms for the seller, and not you. Make sure you know the true market value of the property based on its condition, have all the right contingencies in the contract, negotiate any inspection items appropriately, ensure that the closing docs are correct, etc. This website is a great resource if you need help along the way. I noticed this is your 2nd post, welcome to the forums and congrats on the deal!  

[Michael C.]

IV been snooping around the forums for a while, just don’t say much. But thanks for the welcome. 
The agent is working as a transaction broker. 
I spoke with an agent at First Bank who is there preferred lender. They gave the verbal "he's good" instead of an official pre approval which is kind of odd but the agent was fine with it. I have over half in cash, 750+ credit, getting approved won't be an issue just finding the best loan. I'm thinking to just get whatever loan has the cheapest closing costs then refi into a VA cash out after repairs are done.

As for the price the agent told me the list price seemed high so make an offer. The seller is an older gentleman who had lived there for the past 25 years. He found his “retirement home” and had a number in mind he needed to get that one. We were able to find that number after some negotiation. 

I guess we will see if price makes sense after inspection and appraisal. 

[Bill S.]

@Michael C. so I suppose your scenario is possible but I am a skeptic. Tri-plexes are very hard to comp. There are really very few of them. I bank at FirstBank and have a commercial loan with them and have had residential loans from them as well. They are expensive with fees and they charge a higher rate (they get paid on the back end for this). I have found local mortgage brokers offer better terms and fees than the banks do. You can just search here and find a number of local mortgage brokers who contribute and know the investing game. Read some of their posts and then reach out to the ones you think would be a good fit. Assuming all the units in the property are livable and with your cash position, I would suggest you just finance it as a regular purchase with 20% down. Use the rest of your cash to rehab after you close and then, if you want your cash back, do a refi. Right now mortgage brokers are swamped and the rehab loans are a huge headache so it's going to be hard to find someone to help you with one of those. 

[James F.]

@Michael C. like @Bill S. I also bank with FirstBank for my Colorado deals, they're been great for a purchase that was a little outside the box of what a traditional lender was willing to consider. They also let me take Title directly in an LLC instead of dealing with quit-claim/deed shenanigans after the fact.

[Matt M.]

I bank with Firstbank, but I've seen them mess up deals for my clients. I won't send them any more business. They are fee heavy and too conservative on their loans. I've been using commerce bank lately. 

Being $120k under list sounds a bit fishy to me. Sounds like it was over priced, but was it really that much? Get some referrals from the agent for inspectors. PLEASE do a sewer scope and strongly consider a meth test. 

How much rehab does it need? Do you have the funds/experience to take that on? I ask because you have a VA loan, so I doubt you're putting anything down.

[Michael C.]

It needs a bunch of work. Some Original single pane windows, flooring, bath and kitchens need updating. Smells like smoke. Paint, general cleanup. I’m planning about $50k rehab.  I’ll do almost all myself and not in a big rush.

Currently putting 20% down. No way it's going VA. I was talking va rehab, but from calling around no one really does them anymore and a 203k takes a long time to close. So it's off the table

Sounds like mixed reviews on 1st bank, so far they have been good. I heard back from loan guy today he said as long as appraisal is good they will do a 5/30 arm @3% with 0 points with 20% down.  Sounds pretty good to me. 

If you want to take a closer look mls# 4447659 under contract at 480.  Let me know what you think. (legally it’s a duplex but has 3 units) I’ll file to get that changed Once I own it.

Fixed up I think it would rent for around 1/1 @ $1000, 2/1 @ $1500, 3/1.75 @ $2000. (Mortgage/tax/ins would  be right around $2000)
Refi into a VA later if I want to pull out $. ARV should be $650-700ish.
But I’d like to hear your thoughts. 

[Maria Bakaj]

@Michael C. Try calling another lender and see if you can get a fixed rate 30 yr 20% down at around 3%, so that way you don't have to refi in 5 years if you don't want to.  I've heard from my network you can for an investment property, but I know it depends on all the variables. 

Have you gotten in to see all the units yet?  What's the deal with the tenants?  From what you described in terms of renovations, it seems like a steal, but you'll know better post inspection.  The actual location close to the park is a bonus.  As @Steve K. noted, be mindful of the fact that you're doing trx broker as you navigate through this.

[Michael C.]

Delivered vacant.

[Nick Cooley]

Kudos to finding what seems to be a good deal based on the numbers! 

As others have cautioned, usually when something sounds too good to be true, it is. However, if your team has vetted and validated some of the pitfalls of your first deal, sounds like you found a winner! 

[Steve K.]

Zoning code U-RH-3A= U for neighborhood type, Urban. RH for building type, Row House. 3 for max stories (3), and A for square footage (3,000). Row house means all front doors must face the same direction. Tax records list this property as a legal duplex. Getting properties rezoned in Denver, in my experience, is hard. I'd probably keep it as a non-conforming triplex and not bother with the city trying to change the zoning which will likely be a dead end. You'd probably have to show some kind of hardship, provide an as-built, get architects involved etc. It may be grandfathered in or something somehow but you'll want to research that and just know the city very rarely allows zoning alterations except in hardship cases.  

There's an expired listing in the MLS, from a few years ago (listed at $360k), that says it used to be a 4-plex but "previous tenant converted downstairs into a 3 bedroom 2 bath residence". I'd check if any permits were pulled for the work that was done/is currently being done. Being zoned as a duplex but set up as a triplex will potentially cause problems if you want to permit any work, and if you don't permit work that could hurt the resale potential.

As Bill S. said, there really aren't many triplexes in the area, so they're hard to comp. Since it's technically a duplex it should probably be comped against other duplexes, or more specifically I suppose, non-conforming triplexes. From having worked on deals in the area and from owning a building not too far away, I'd say $130-160k per unit is average pricing for multifamily in this location. I have 1/1's nearby rented for $950, 2/1's @ $1,300 and 3/2's @ $1,850 (clean, updated units but nothing fancy). I think your projected rents are possible but a little on the high side. An ARV of $650-700 is overly optimistic IMHO. I'll be curious to see what the appraiser comes up with.

There is a 2.8% commission for a buyer's agent built in to the listing agreement, so the seller was prepared to pay an agent to represent you, just FYI (although the seller is probably saving on not paying one with the current arrangement, and hopefully some of those savings are being passed on to you). The listing agent had a fiduciary duty to the seller as the listing agent, but now as a transaction broker cannot advise either side, which is a bit tricky for them to navigate since they've obviously already coached the seller. Anyway, be sure to do your due diligence, get good title insurance, use a good inspector, do a sewer scope, etc. and verify everything. Keep us posted and good luck!

[Michael C.]

Thanks Steve that’s awesome research and knowledge. 
I am using the inspection company you recommended, also having a contractor check it out same day as inspection. 

Yes I think comps will have to be duplex’s also. 
The house next door is mirrored of this one and is still set up as a quad so that makes sense. That one sold for 600 last year, single row houses across the street nicely updated sold in the 400’s each.

I think the area is changing with west Colfax starting to spill into north villa park. (Everything that sells is either scrape/build or value add, and it goes for all the money)

But I’m new at this, your points are very good and I have a lot to look into. 

[Steve K.]

I agree that location has good upside. The property is sandwiched in between two opportunity zones (the one to the west ends at Sheridan and one to the east ends at Perry), so there will be a lot of redevelopment along that West Colfax Corridor in the next few years. Good luck with the inspection and subsequent negotiations. Great idea to bring a contractor with you for the inspection. 

[Bill S.]

Originally posted by @Michael C.:

Thanks Steve that’s awesome research and knowledge. 
I am using the inspection company you recommended, also having a contractor check it out same day as inspection. 

Yes I think comps will have to be duplex’s also. 
The house next door is mirrored of this one and is still set up as a quad so that makes sense. That one sold for 600 last year, single row houses across the street nicely updated sold in the 400’s each.

I think the area is changing with west Colfax starting to spill into north villa park. (Everything that sells is either scrape/build or value add, and it goes for all the money)

But I’m new at this, your points are very good and I have a lot to look into. 

I now the area well, my partner and I did the 4 unit town house project across the street that you mentioned.

Your price is what I would consider to be market based on what you have said. It might be a bit below market but without seeing the condition it's hard to tell. $600k for a tri-plex in that area is way out of line in my mind but I also thought that $600k for the fourplex was high as well. Since interest rates have dropped, I'm having a hard time adjusting to the increased valuations so take my idea of value with a grain of salt.

Your unit is likely legal non-conforming. As Steve mentioned, there is a process with the City to get it corrected from a duplex to a tri-plex. The risk you run is that the conversion was done later and obviously without permits so you might have to go through a bunch of hoops/spend some money to get it recognized as a triplex. Generally speaking, it's probably not worth the headache but if you did then you would have all your i's dotted and tees crossed. There was a triplex to the West that was divided into a two separate properties (one zone lot with two parcels) and sold as a small town house (parcel A) and an attached duplex (parcel B). If I remember right the small unit sold quick for about $250k and then the attached duplex took a long time to sell but finally sold for around $430k. Might be an exit route you could go. The difference is that the one you have under contract doesn't have the vehicle access to back units. 

[Michael C.]

Bill that’s awesome you did the project across the street! Small world.

Also looking around on Zillow, the building next door has a 2 bed 1 bath 750 sqft for rent $1525. I messaged the listing agent and said I was under contract on the duplex next door and would love to talk with owner. 
I'm on a MLS feed of duplex's/tris/quads, most seem to be 600+.
I agree price seems high compared to a $480k single family house. I would get turn key really nice place vs this fixer upper. 

One good thing with Denver's STR laws- (owner occupied) me and the wife each take one Part of the duplex as primary and we could still live in one and STR the other 2 out legally. Not sure if people are looking to stay in that area though or if it would be worth it with Denver's rules permits and taxes.

Inspection tomorrow afternoon. 

[Bill S.]

Originally posted by @Michael C.:

Bill that’s awesome you did the project across the street! Small world.

Also looking around on Zillow, the building next door has a 2 bed 1 bath 750 sqft for rent $1525. I messaged the listing agent and said I was under contract on the duplex next door and would love to talk with owner. 
I'm on a MLS feed of duplex's/tris/quads, most seem to be 600+.
I agree price seems high compared to a $480k single family house. I would get turn key really nice place vs this fixer upper. 

One good thing with Denver's STR laws- (owner occupied) me and the wife each take one Part of the duplex as primary and we could still live in one and STR the other 2 out legally. Not sure if people are looking to stay in that area though or if it would be worth it with Denver's rules permits and taxes.

Inspection tomorrow afternoon. 

 STRs seem to be the rage and how people are living for free but it's not for everyone either. So my thought is that $1,525 is on the high side for 2/1 in that neighborhood. I have some property in the area and it would appear that I am underpriced if they get that for rent. I am also looking at a multiunit deal in Mayfair that has some larger 2/1s (over 1,000 sqft) that are getting that. My idea is that Mayfair is a more desirable area than Villa Park but to each their own.

[Michael C.]

So some good news. County record is wrong. House is 2800 sqft Same as next door, not 2100 like it’s listed. 

Inspection revealed federal pacific electric panels and mostly non grounded 2 prong outlets.  I will have to get quotes and ask for a modest price adjustment for panel upgrades.

Exterior was good, roof is from 2017, brick didn’t have any cracks or settling. 
Sewer main line found some cast iron build up and small root intrusion. Recommended a hydro jetting for $850, but currently draining fine.

1 heater is about 6 years old, other 2 are over 30 and 1 of the old ones is in-op.

Already knew windows need replaced, Kitchens and baths need update so wasn’t worried about that too much. 

Overall pretty happy.  I may even consider converting to a quad now that I found its 700 sqft bigger not sure yet. Doesn’t look like too much more work. 

[Michael C.]

Anyone have experience with rezoning in Denver?  duplex to tri or quad?

[Craig Curelop]

@Michael C. - FirstBank is great for commercial deals. They tend to be more expensive with higher rates and fees, but can get the tricky deals done. 

For lenders, I like to use Mike Stone over at Megastar or FlatIrons Bank I have heard good things about as well. I have a contact at Guild Mortgage who also does pretty good work! 

Inspectors, I usually like to use 360 Degree or Axium. 

You've got yourself an interesting property there, I hope it works out nicely for you! 

[Bill S.]

Originally posted by @Michael C.:

Anyone have experience with rezoning in Denver?  duplex to tri or quad?

In general, you are wasting time and money trying to rezone in Denver. Their favorite answer is "NO". I was told by an architect that sits on the board that reviews requests for variances, that they only grant them in hardship cases. Hardship cases are not, "I need it so I can make more money". 

As I mentioned before, it is probable that your property would be considered legal, non-conforming since it's present configuration likely predated the current zoning class. You can find out if you want to kick that bear. If you want to risk the legality of the third unit start the process with the City. I don't think they would allow you to add a fourth unit unless it is already set up for it (has a cook stove - gas or electric) and perhaps also legal non-conforming. You can try, all it costs is time and money. To start the process call the zoning department and describe the situation. Actually you will have to leave a VM and then in a few days someone will call you back. They will tell you what the steps are. Now having said that, they are not helpful in that they won't tell you how to approach them for the most positive outcome. I would start with so someone how would I go about this... and what would be required to prove it is legal non-conforming... I would reach out to them before you close so that you can ask the questions in a way that is neutral meaning that you don't have a dog in the fight (yet). There are attorneys that can help with the process as well. Post back if you need a referral for that. They are not free or cheap but might give you their thoughts in a couple minute phone call without charging you.

[Michael C.]

@Bill S.

Did you rezone the property you did across the street? From 1 property into 4 individual or was it already 4 individual row houses?

[Bill S.]

Originally posted by @Michael C.:

@Bill S.

Did you rezone the property you did across the street? From 1 property into 4 individual or was it already 4 individual row houses?

There is no change in zoning. The property is legal and conforming. Multi units all with doors facing the street. The zone lot remained intact. The parcel was split. Any modifications to any of parcels requiring zoning approval would consider the zoning as if all parcel were still owned by the same person. It's a bit confusing because Denver has a very unique approach to zoning and divided individual parcel ownership. In most jurisdictions, the project across the street could not have happened because the resulting parcels would not meet the requirements for individual zone lots. Denver has adopted the perspective that parcels can be split out but the zoning still looks at the original configuration. Denver has zone lots and parcels. In many cases they are one and the same but there are also not an insignificant number where that is not the case. Post back if you have a specific question and I will try to explain.

[Michael C.]

The property doesn’t make sense as a side by side duplex. There are no interior stairs. 
To get to the basement of your duplex you have to go outside to the lower entrance. It just doesn’t make sense. 
The property was originally designed as a quad as the neighbors is, just never legally. 

I have been looking hard into the zoning actually as that’s now my biggest worry. 
Iv been reading the zoning articles related to this. 
1. it could be a row house- would need variance to allow doors to not face the street per current zoning  

2. Could be apartment- but would need variance to not be on a corner. 

I have requested all documents and permits for the house I am under contract on and the one next door that’s a quad from Denver zoning review to see what is different. 
The old rules had lot size minimums much larger than current where the next door quad wasn’t big enough to meet either. 6000sqft for 2 unit, 9k for 3, 12k for 4 units.
New rules after 2010 made lot size minimum 6k for all multi family. 
This lot is 6500. 

We extended our objection deadline until Tuesday to try and do some more research.

So if I cannot convert it legally would I be able to add another electric meter? Or is one meter per legal residence allowed?

[Bill S.]

Originally posted by @Michael C.:

The property doesn’t make sense as a side by side duplex. There are no interior stairs. 
To get to the basement of your duplex you have to go outside to the lower entrance. It just doesn’t make sense. 
The property was originally designed as a quad as the neighbors is, just never legally. 

I have been looking hard into the zoning actually as that’s now my biggest worry. 
Iv been reading the zoning articles related to this. 
1. it could be a row house- would need variance to allow doors to not face the street per current zoning  

2. Could be apartment- but would need variance to not be on a corner. 

I have requested all documents and permits for the house I am under contract on and the one next door that’s a quad from Denver zoning review to see what is different. 
The old rules had lot size minimums much larger than current where the next door quad wasn’t big enough to meet either. 6000sqft for 2 unit, 9k for 3, 12k for 4 units.
New rules after 2010 made lot size minimum 6k for all multi family. 
This lot is 6500. 

We extended our objection deadline until Tuesday to try and do some more research.

So if I cannot convert it legally would I be able to add another electric meter? Or is one meter per legal residence allowed?

Just a note. If you add a profile image I can "mention" you vs having to "quote" you. 

So I am a bit fuzzy on your situation. You said it's a tri-plex but was a quad. Is there plumbing for a 4th kitchen? Is there an electrical or gas connection for a 4th range? 

I think you are barking up the wrong tree with changing the zoning. You want to have the "property type" changed and I think the term is to change to the "use" to be classified as the a "triplex" or "residential 4-8 units". The zoning controls building form on new construction or modifications (row house must have all doors facing street). Your building form is legal non-conforming (only one door faces the street). I have not gone through the process on changing use. I looked into it for converting a warehouse to living space and it was not feasible due to the requirement to bring the building up to the new building code when the use was changed. I think the question to ask is "My property/the one I want to buy and my neighbors properties are the same exact structures but their property type is "residential 4-8 units" and my property type is a "duplex". How do I get my property type changed to the same as theirs which is incidentally what mine really is?" It may come down to when was the use actually changed from the original duplex to the tri or quad. I am assuming the problem is that the conversion was done without a building permit so county records don't reflect the added units. Originally, the basement was probably not finished when the CO was issued. At some point after that, the other unit(s) were brought on-line again without the benefit of a building permit.

If it's really important to you and it sounds like it is, I would suggest starting with a knowledgeable attorney so that you don't tip your hand in the wrong direction with the City. 

[Michael C.]

@Bill S.
As Steve K said earlier There's an expired listing in the MLS, from a few years ago (listed at $360k), that says it used to be a 4-plex but "previous tenant converted downstairs into a 3 bedroom 2 bath residence". 

Giving up the 4th unit may qualify as loss by vacancy  from termination of compliant uses in Denver zoning code. Even though the space wasn’t vacant for 12 months it wasn’t used as 2 units in 12 months. 

I can also tell because the basement unit was converted badly. Doorways through bedrooms in what was the diving wall to connect the units into 1. That’s why it wouldn’t be to much harder to put it back to 4. If only 3 units the basement needs the floor plan reworked. 

I didn’t think to look for evidence of another kitchen at the inspection. I have pictures of both electric panels.  There appears to be either 5 or 6 220v breakers. (2 labeled main range, one dryer, others not labeled) currently has 3 ranges, one dryer, no a/c, gas heat and water so I would assume the 5th 220v is a plug somewhere else in the basement, that’s where the old kitchen would have been.  No dishwashers. So not sure what else would have 220v connection. 

[James Carlson]

@Michael C.

Saw you and @Bill S. talking about Airbnb-ing this property. Two notes to be aware about the Denver Airbnb law. 

1. Yes, if it's a SFH with a mother-in-law suite or carriage house or something, then you can rent one of the other units. But if it's actually zoned as a duplex or multi-unit, then technically you cannot rent the other unit. (See the Denver STR FAQ page, about 3/4 down for this exact question.)
2. Even if it not a multi-unit and therefore you can rent a space on Airbnb, Denver still only allows you to rent to one party at a time. (See Sec. G under 11.8.10.1 on this doc where it says, an STR "shall not include simultaneous rental to more than one party under separate contracts.")

I always say to people, what is allowed and what you can get away with may be two different things, but I'd want to know the laws. And Denver is notoriously good at cracking down on people violating the law. 

Still, you've got other house hacking options here. You can Airbnb one unit, you could medium-term rent the other (still furnish but rent for 3 months to say traveling nurses or business people). Or short-term rent one and long-term rent the other, etc. Good luck!