All Forum Posts by: Justin DeMontier

The deal would only make sense as a flip if converted so a single family home. I'm looking to avoid a flip at this time, especially with the uncertainty of the economy/market over the next few months. My consultation with a zoning attorney yielded this response:

As I mentioned briefly when we spoke yesterday afternoon, the “grandfather” provision in the Knox County zoning ordinance (Section 3.60 “Nonconforming uses”) that the lender appears to be referencing requires a showing that the existing land use was lawful at the time when a prior zoning change occurred (that resulted in the current use being rendered unlawful). In other words, for the property to be grandfathered, you would be required to show (1) that the property was previously zoned RB (or another zone that allows multi-family housing), (2) that the multi-family use existed at the time of the zoning change from RB to A or RA, (3) that there has been no intervening period of 6 months or more in which the property was not used for multi-family housing, and (4) that there have been no structural alterations to the property since the initial multi-family housing was built. To determine whether the property qualifies for protection under the “grandfather” provision would require more extensive research of the historical zoning maps and more information about the past use(s) of the property.

It sounds like the particular lender you mentioned is going to require you to take some action with local government before they approve the loan (whether obtaining written confirmation that the property is grandfathered, confirmation of re-zoning, or perhaps even simply a letter from Knox County stating that they are not going to seek to strictly enforce zoning with respect to the property might suffice). You might want to set up a meeting with the planning commission to discuss these issues, but, as I mentioned yesterday, there is definitely risk associated with this approach if you move forward with purchasing the property, as you are buying a property that’s out of compliance and may not be grandfathered. If you are unable to obtain relief from the planning commission, the non-compliance would then be on their radar screen.

For what it’s worth, I see that the Agricultural zone which covers most of the parcel (and the entire house) allows for duplexes but not multi-dwelling structures (3+). So, converting to a duplex may also be an option.

Ultimately, I can’t give you specific advice on your situation (or refer you to someone who’s more of an expert on zoning issues, if appropriate) without doing a full investigation of the zoning ordinances and zoning maps.

 This response leads me to believe that by bringing it to the attention of the planning commission, it may potentially open up a series of other headaches that wouldn't have come up otherwise.

The deal would still work if appraised as a SFR, I may just leave more cash in the deal based on the fact there would likely be a lower appraised value as an SFR vs multi-family. However, if it is only rented as an SFR, meaning there is only one family in the property, it would not cash flow without utilizing the other units for income as well. From other conversations I've had with lenders, some will not lend on a SFR being used as a multi-family due to non-conforming use. I'm looking to buy and hold, ideally. The neighbors are fully aware of the use of the property and have had no issues with it for the past 15+ years.

I apologize in advanced for the lengthy post, but I'm going to try to be as detailed as possible, so here we go...I currently has a property under contract that I have been prepared to close on for my first BRRRR but have run into an issue.

The property is an off-market deal being sold as-is by the seller, who has owned it since 2005. The house is a triplex and has been used as such ever since the owner bought it; it has 3 separate electric meters, mailboxes, etc. However, the property is zoned as a single family home. I have attempted to contact multiple people from the zoning/planning commission (Knox Co., TN) and they have proven very difficult to get a hold of. Those that I have been able to reach have basically told me that it is HIGHLY unlikely for the property to be rezoned as a multi-family dwelling. I have looked into getting non-conforming use permits, conditional use permits, zoning use variance requests, etc. but this process could still be very lengthy and I'm afraid this will open a can of worms that will cause the county to further look into it and raise more issues.

My main concern/worry is that when it comes time to refinance the property after the (minor) rehab has been done, lenders may not finance the property on a long-term loan due to a non-conforming use of the property. I have a list of about 20 lenders that I called prior - 4 of which offer the long-term loan criteria that I'm looking for. Of the 4 that I had it narrowed down to, one of them said that they SHOULD still be able to do the loan, regardless of the zoning/use, it would just be appraised based on what is recorded with the county/title. So in this case, if it's recorded as a 3 unit SFR, then that's how they would proceed. However, it makes me nervous to get into this based on the fact that they SHOULD be able to get me the loan - the uncertainty makes me a little leery, as I don't want to get stuck with the property with little to no other options. That being said, another lender told me this:

“The subject is an SFR with a basement. County records supports public records. We will need permits for any additions and a document that allows for 3 units on a SFR zoning.

In some areas where zoning is changed, the local municipality will grandfather in the current zoning/use. The only way to know that is by a letter from the city/county and or a rebuild letter that states the subject (specifically) was grandfathered into current zoning, what was allowed on the property and that it can rebuild if damaged or destroyed.”

Circling back to our initial conversation, I can assure you that we will be able to refinance this property, however, the term length and loan product simply depends on the use type at the time of refinance:

· If permitted as a triplex (or grandfathered in): we will be able to offer the 30 year rental product. Bridge would be available as well.

· If permitted as SFR only: the bridge loan, 1 or 2 year term, would be the only option given the “cost to cure”

So the options are there if needed, they just don't all seem to be ideal. My insurance policy is written for a triplex and the acquisition (hard money) lender is appraising/funding it as a triplex so my only main concern is the refinance. With everything going on in the world right now, I am skeptical on the likelihood of flipping the property as an alternative exit strategy. The deal has the potential to be a home run buy and hold rental property if everything works out, but there are a lot of what-ifs that are making it hard to proceed with closing. I'm also willing to consider any strategies or approaches to make the deal work, as I know I have a great deal on the table. That being said, I'm looking for any advice/pointers from anyone who has been there before or has more experience with something like this than I do. Let me know what you guys think on how I should proceed. Thank you in advance!

Welcome to Knoxville! I did the same thing with my other half about 6 months ago and we couldn’t be happier with our decision! We moved from Pennsylvania for the same reason. Let me know if there’s anything I can help with in the future if you’d like to connect!

I'm also in the Knoxville area and excited to get started investing in 2020. While I'm not doing flips, I'm looking to find similar properties to BRRRR. If you or anyone else getting involved with this thread would be looking to connect, I'm always looking to expand my knowledge/network as well! Best of luck!

 Ken, thanks for the info! I’m patiently awaiting the next meetup and learning/networking as much as I can in the meantime. Next time you’re in the area, let me know, as I’d love to chat!

I've been debating between trying a BRRRR or fix & flip, or buy & hold (turn key or one that requires some rehab)..I just need to continue to weigh the options and educate myself for whichever option I determine to be best for me starting out. I work a full time job, putting in at least 48 hours a week so that has a large impact in my decision making process.

 Thanks! I did consider that option initially, until I was blessed with the opportunity to live in a property that my parents own for nothing more than  the cost of taxes, utilities, and insurance. So my living expenses are minimal for the time being..therefore I’m trying to take full advantage of that!

Hello everyone on the BiggerPockets forum! I've had an interest in real estate investing for the last year or so now. After finally moving to Knoxville, Tennessee and beginning to dig some roots, I'm looking to start taking my real estate investing journey to the next level. I have been reading as much as I can, trying to learn as much as possible. This is where you guys come in! I'm looking to network, get advice from people that have been there, done that, and eventually pull the trigger on my first property! I have it narrowed down, but I'm still trying to define my niche and begin the process of mastering it. I'm looking forward to getting in touch with the valuable members of this community and build a relationship with all of you! Thanks!