Investor · Indianapolis, IN · Member since 2017 · 45 posts · 6 votes
Hello BP,
I'm looking for some advice. I've got a deal under contract in Cincinnati Oh. It's a 5 plex but city officially sees it as a 4 unit because when the original owner filed the paperwork that was the classification given.
My seller tried to get a variance, but city said they wouldn't qualify. And if they tried to rezone the building it wouldn't be approved.
Has anyone experienced this? If so how did you go about getting it rezoned or is it not possible?
Seller was asking for 250k for building based on it being a 5 unit. But first appraisal from first buyer came back at 200k and mine came back at 185k within a matter of 2 months. Seller is willing to go for appraised value putting the deal at a 9+ cap.
I’ve been in this position before. If it’s legally a 4plex and city only I allows 4 units then I would only have 4 units. I don’t personally ever operate illegal units because if something were to go wrong and you have illegal units you’re going to have an issue. Sounds like the seller is willing to take 4 unit price. Sometimes 4 units can be more valuable than 5 since way easier to finance and has both Comp and cap value.
I’ve been in this position before. If it’s legally a 4plex and city only I allows 4 units then I would only have 4 units. I don’t personally ever operate illegal units because if something were to go wrong and you have illegal units you’re going to have an issue. Sounds like the seller is willing to take 4 unit price. Sometimes 4 units can be more valuable than 5 since way easier to finance and has both Comp and cap value.
@Henry Offiah It may not be worth it to get it re-zoned. Could you utilize the "fifth unit" as part of one of the other units and just have a larger fourth unit in the building? Where is this property located? In Cincinnati or a suburb?
@Lee Ripma thanks for the reply. the lender still recommended a commercial loan as it aids in tax reassessment. can you give some examples of things you have experienced going wrong?
@Zachary Elliott unfortunately the fifth unit is in the basement and currently, tenant occupied. its located in west price hill.
this is my first 5/4 unit deal in cincy so not too sure what kind of issues could arise in the case of an illegal unit,
Talking to my insurance guy is what convinced me never to operate illegal units. If someone dies in an illegal unit, like there is a fire and they die, and it was an illegal unit, you'll be liable with no coverage. Now insurance folks always scare you with stuff like that, it's a very remote chance that someone dies. Still, I only do things that are legal in my rental business. Basement units can be legal but I don't do those. I just want to have a clean business that I know is 100% legal, I really like sleeping at night.
Congrats on finding this property @Henry Offiah! It sounds like the Seller is motivated to sell and is willing to make this work for you as a 4 unit. I would roll with it as a 4 unit. Is the resident in the basement on a month-to-month lease? That would make it easy to ask them to leave soon. Maybe you could rent the basement out as storage to one or two of the other residents. You'll definitely want to have good management! Good luck and God bless!
@Lee Yoder yes the basement tenant is a m2m, in fact all tenants are m2m. thanks for the recommendations.
@Lee Ripma thats a very good point, i will discuss with my insurance company to ensure things are ok going in as-is.
What has been the experience of refinancing a 4plex to pull cash out when buying at appraised value? specifically in this case where theres more income than reported. there is much room for improvement in terms of updates and reducing expenses. Generally in the SF world, its comps that drvie things, i know Residential MF is also similar. just want to see how successful others are in these terms.