Rezoning rejected, but still making money.

[Scott Wright]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $255,000
Cash invested: $255,000

We bought a home with intent of converting to three 2/1 apartments, however, the neighbors opposed the rezoning application so it remains a single family home. After $25,000 renovation, finally rented it for $2,200/mo. Home appraised for $286,000 and I now have a $243,000 line of credit against it ready for next investment opportunity.

What made you interested in investing in this type of deal?

The home was built in two phases with the original 2/1 apartment upstairs (including kitchen and dining room) above the garage with a later living room and master bedroom addition to the right side. It had been on the market for 6 months. I figured out a way to convert it into three 2/1 apartments. The home also sits to one side of a very large lot, so it has potential for adding another home on the property.

How did you find this deal and how did you negotiate it?

I found it through realtor.com web site; I used my realtor friend to make an offer well below asking. We compromised in the middle.

How did you finance this deal?

Because we intended to renovate the property, we took out a loan against our fully paid for home in lieu of a construction loan, with the intent of then taking out a new loan on this house after the triplex conversation reappraisal and then repaying our home loan.

How did you add value to the deal?

We added a second kitchen and dining room downstairs and converted it into two potential units with "hotel room doors" between. It reappraised for slightly more than the renovation cost.

What was the outcome?

After having our rezoning application denied, we were able to rent it to a single extended family that wanted two separate living spaces.

Lessons learned? Challenges?

The neighbors were the obstacle to getting the property rezoned from R-1 to R-2 for a triplex. Because the lot was so large, the neighbors thought I was going to build an apartment complex on the property.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Our real estate agents have been wonderful to work with, as was our banker and property manager.