Zoning violations - Multiple units in R5 zoned house, how common?

Question

Hi - NEWBIE ALERT!

We're first-time investment property buyers. We're looking at buying a house that has been running as 3 units for many years. However, it's zoned R5 for a single dwelling. I'm aware that code violations with the city are a complaint-driven system, and the city won't necessarily just drive by and give us a code violation - it usually comes from neighbors.

First question - how common is this?? I understand there are plenty of owners who will turn a single-fam dwelling into 2 or more units without the proper permits or zoning since that is expensive and raises taxes. Should I not worry too much about it?

My worry is that I find it hard to sell the property down the road, or that I do get a code violation at some point. Also seems like because of the illegal units that it would be hard to do anything else (like add an ADU) in the future development-wise without getting a code violation for previous stuff.

Thoughts? Thanks in advance!

Mathew Wray · Answer

@Jonah Geil welcome to BP!

You're asking great questions. It's definitely a risk and one which I personally would avoid unless you have something in writing from the city. The process to convert to an ADU is fairly straightforward, but you may have trouble converting to a legal triplex.

Could you buy it, rent it out, and have no problems? Yes. Are you risking violations, corrective compliance, and the potential of having to convert back to a SFR, losing your investment? Yes.

The other option is to call the city back and ask them what the price tag associated with the permits, fees, and violations to get it into working order and then deduct those from your purchase price. Portland isn't exactly developer friendly, but the one-on-one interactions I've had with city workers have been pleasant.

Best of luck and let us know what happens!

Account Closed · Answer

@Jonah Geil to add to what @Mathew Wray said, it depends on your risk tolerance.  I know a lot of buy and hold investors who wouldn't have a huge problem buying a bootlegged triplex.  If you don't plan to sell anytime soon, then you don't necessarily have to worry too much about what happens when you sell it.

That said, the Residential Infill Project is in the works, scheduled to go before City Council in May.  It's going to pass in some form or another.  In a nutshell, it will allow triplexes or duplexes + one ADU in some areas.  The current (a) overlay is completely different from the new RIP (a) overlay.  If the house is in the new RIP (a) overlay, then it's in the "housing opportunity" zone and would qualify for [currently] up to a triplex.  (Search for "map app Portland to find if that location is in the zone.)

Some small developers and I met with 4 members of the Planning and Sustainability Commission yesterday to urge them to allow up to a 4-plex in R5, expand the housing opportunity zone to all areas of Portland, and to increase the proposed allowable FAR (floor area ratio) to at least 1.0 (current FAR in the RIP would only allow a .5 FAR, or a total of 2,500 square feet of building area for a 5,000 square foot R5 lot).  Maybe some of our suggestions will get passed on to Council in the final proposal.  Maybe.

In essence, if you're planning on developing RE (which is what you'd be doing if you try to permit an unpermitted triplex) in Portland, you may want to become intimate with the RIP, Better Housing by Design project, and Portland zoning in general.

Lastly, Oregon building code currently considers triplexes to be commercial real estate, meaning they must have sprinklers and more robust firewalls; there's currently some momentum to change that at the state level, but you know how fast/slow these things can be.  If you try to permit a triplex now, you'll want to consider those extra building costs.

If it were me, and the deal was too good to pass up, and I was already in contract, I'd bring up the permitting costs (including the extra costs for commercial buildings) with the sellers to negotiate down the price.  Then I'd continue to rent it out to existing tenants (assuming it's in good shape), and wait and see what happens at the local and state level re: RIP and Oregon triplex building code.  If the laws change to something that would benefit me (e.g. they increase allowable FAR in the RIP, and the building code allows triplexes without sprinklers), then I might consider permitting it.

Alternatively, you could convert to a legal SFR + ADU now by merging 2 units.  If, for example, you can create a 3/2 instead of 2 one bedroom units, This may actually net you more rent. You'd want to do the math/research.  (And it wouldn't necessarily preclude you from turning it back into a triplex later.)

Jacob Szeto · Answer

Hi Jonah,

I just purchased a triplex with similar issues. The zoning just barely allows a duplex but it is a triplex. I went to the Clackamas County Planning Department to see if the triplex could be grandfathered in. It took some research into sewer records to prove it was a triplex before the neighborhood was zoned but after about a week of research the Planning Department gave me a letter saying they approved the grandfathering of the property as a triplex.

I did this all before I purchased the property. Let me know if you have any questions.

- Jake

Mike Wood · Answer

@Jonah Geil  I would suggest talking with the city and determining if they have process to allow the property to operate in its current configuration, i.e. grandfathering.  Zoning  often changes and most large cities will have a method to document existing non-conforming properties to allow the property to continue to operate.

I would not purchase a property that you could not get such documentation.  If you ever need to get a permit in the future, you could be exposing yourself to the city making you turn the property in question back to a single family house.  Same is the non-conformity is reported to the city by others (could just be a city inspector doing a nearby inspection and noticing multiple units.

Jonah Geil · Answer

Thanks @Mathew Wray, Account Closed, and everyone! Great feedback. Yeah I had just heard about the "Map App" that lays out some of the potential upcoming changes.

In the end, we decided to pass on the property - there were a few other things that didn't work out according to our math, and we didn't want to take the risk as there seems to be plenty out there on the market that is permited better!

Last question as I read through all these awesome responses: What does RE stand for in this sentence? "if you're planning on developing RE..." From Dani's response.

Cheers,

Jonah

Mathew Wray · Answer

I know I’m late back to the conversation but can’t help and say a big “YES” to Account Closed

As she clearly laid out, there big changes in the works to how Portland zones. Hopefully they will work out in our favor, because that will end up truly helping the housing shortage and give us more options for infill and development.

It all comes down to your tolerance for risk and your ability to accurately prepare multiple exit strategies.

Chris Shepard · Answer

@Jonah Geil

I can’t let a good thread end with a facepalm

Maybe you should give us all the address of the property and the price so we can analyze the deal you just looked at!

I think it would be very interesting!

Rees Bettinger · Answer

I would love to talk more with others who are thinking of the same thing.

Rees Bettinger · Answer

Very Late to the thread here but I thought I would put my 2 cents in. As it sounds like many of you mentioned, there are some significant changes coming with the RIP stuff coming closer to the final stages. Lots of single families now that could be converted into logical duplexes plus adding a detached adu making the property essentially a triplex. This a direction I plan to go later this year to add to my small rental portfolio, as the changes are clarified and solidified.

Zoning violations - Multiple units in R5 zoned house, how common?

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