Any comments on the sucess rates for a legal duplex being utilized as a tri-plex?

[ccameron]

I have an opportunity to purchase a home that currently is generating about $230.00 per month profit. It is divided into 3 units however, it is only legaly described as a duplex. I do not presently own any multi -family dwellings and am intrested in any feed back ie. insurance issues, mortgage issues...etc.. Thank You

 

[terri]

[quote name=`ccameron` date=`Jan 5 2008, 03:28 PM` post=`8047`]
I have an opportunity to purchase a home that currently is generating about $230.00 per month profit. It is divided into 3 units however, it is only legaly described as a duplex. I do not presently own any multi -family dwellings and am intrested in any feed back ie. insurance issues, mortgage issues...etc.. Thank You

Hi,

First off where is the property located?

Some areas are really strict about cracking down on illegal suites, some will turn a blind eye until it is brought to their attention. Either way, if it is illegal, once city zoning is aware they have to do something about it, they could make you remove the basement kitchen or apply for a permit to convert it. (Not sure if there is a fine involved with having an illegal suite). Building code requirements in Ontario are completely different for 3 unit buildings than they are for 2 units, so a conversion could be very expensive and may involve making changes to the existing upper units. Also, the area may not be zoned for more than 2 units in which case you would just have to rip out the basement kitchen and leave it as a duplex.


RE: your question about whether or not you can get a mortgage and insurance: I will let one of the professionals answer that for you, again I don`t know where you are buying, but I see tons of properties in Toronto with illegal suites get financing and insurance all the time. What they do look for is that it meets minimum fire code requirements. ..but, talk to a professional. Call an insurance company, call a mortgage broker.


I can`t tell you to go ahead and buy it, you need to do your own due diligence and look into the ramifications of getting caught with an illegal suite. Is the area zoned for multiunit? what would be the cost for legal conversion? If you have to remove the basement apt is there anyway that you can incorporate the space into the main floor apt and charge more rent so that you are not operating in the negative? Can you afford to carry the loss every month of having the basement apt empty while the situation gets resolved? Can you afford all these extra renovation costs? and is it still a deal?

I recently saw a house come on the market that had at one point been converted illegally to a 4 unit and city hall found out, the area was only zoned for a maximum of 2 apts so the owners had to rip out 3 kitchens (they would have still had to apply to turn it into a duplex). They ended up having to just sell the property.

I know some will say walk away, there will be another deal. You have to do your due diligence and decide if you want to take the risk. I always look for properties that are at least legal non-conforming if not legal triplexes, and I have walked away from a duplex with an illegal basement suite because I couldn`t make it work financially as a duplex and couldn`t afford to legally convert it to a triplex. Turns out, there was another deal, it was a better one, and I can sleep at night.

I hope this helps.


Terri

 

[StevenRoorda]

ccameron,

My wife Carla and I purchased a property with four units in it about two years ago. It was noted only as a duplex. What happened to us may not happen to everyone, but we had some major problems with the tenants - a huge long story with a huge lesson learned. Bottom line is that the neighbours complained, the Fire Department was called in, did an inspection and gave us a notice of violation that we had to bring the property up to code. To keep the four units would cost a fortune, so we opted to only do about $30,000 and convert the property back to a duplex - evicting all the tenants to do it. Since the tenants were not paying any rent it made the eviction process a bit easier.

When it was all said and done, the property value has increased greater than the money spent and we are still making the same amount of income per month. The upgrades allowed us to create a better property and increase the rents. Added bonus - better tenants.

I guess the warning I would suggest you do your homework to know exactly what you are getting into. Liability could be a major concern if something happens.

Steve

 

[GarthChapman]

This is really dependant on the municipality and their approach to zoning issues. You will want to drill down to the area of the town, as in some areas the zoning issues are enforced less stridently than in others.

Generally you will find your risk is higher when you have a dwelling unit that does not conform to the zoning regulations.

Hope that helps a bit,

 

[ccameron]

Thank you very much for your reply. I am going to further crunch the numbers to allow for the possibility of the third apt. being taken out of commision. I am not a great risk taker, and I prefer to do things the right way with maximum protection for myself and my tenants. I am looking forward to attending a REIN seminar in Toronto ....It will help to keep my momentum going and my confidence up!! Regards...ccameron

 

[EdRenkema]

If you attend any of the upcoming meetings let me know, there are only a few of us here in Niagara and I`d like to form a `mastermind` group.

Ed R

 

[GarthChapman]

Remember when considering your potential offer that the value of the third unit is much less than for the other two conforming units. Sellers generally don`t discount the non-conforming units enough.