Difference in Property Value: Legal VS. Illegal

[Nir]

Hi All,What is your estimated market value of property B (Ontario):Property A: Legal non-conforming 6-Plex. market value = $500,000.
Property B: 6-Plex with 3 legal non-conforming apartments and 3 illegal apartments.

PLEASE ASSUME: both properties A and B are in exactly the same condition, same area, all 2 bedrooms, same rents etc. and the 3 illegal apartments were built long time ago (say 20 years).

In other words, by how much does each apartment reduce the value of the property just by being illegal? $10,000? 25,000? 50,000?

Thanks & Regards,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ May 22 2010, 08:42 PM) ... 6-Plex. market value = $500,000. ...

...reduce the value of the property just by being illegal? $10,000? 25,000? 50,000?
given inability to finance the illegal COMMERCIAL 6-plex, i.e. using only 3 incomes, not 6, I`d say $125K to 150K LESS !!

different with 2- to 4-plex which are underwritten as residential where the difference might only be 10% or so !

 

[Nir]

QUOTE (ThomasBeyer @ May 22 2010, 09:31 PM) given inability to finance the illegal COMMERCIAL 6-plex, i.e. using only 3 incomes, not 6, I`d say $125K to 150K LESS !!

different with 2- to 4-plex which are underwritten as residential where the difference might only be 10% or so !
Thank you Thomas, an Excellent point!

By "inability to finance" you mean worse financing conditions, right?
because literally inability to finance = inability to purchase! (well unless you buy cash which 99% don`t)

By worse financing conditions, do you mean smaller mortgage will be available (say only 250K for property B) or higher interest rate? or both?

I`m guessing mainly smaller mortgage.

Are you also referring to the difficulty in selling with profit in say 5 years due to expected similar financing issues next buyer will have?
is "$125K to 150K LESS" mainly related to that OR mainly to the financing conditions you would get as a buyer today?

Regards,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ May 22 2010, 10:34 PM) Thank you Thomas, an Excellent point!

By "inability to finance" you mean worse financing conditions, right?
because literally inability to finance = inability to purchase! (well unless you buy cash which 99% don`t)

By worse financing conditions, do you mean smaller mortgage will be available (say only 250K for property B) or higher interest rate? or both?

I`m guessing mainly smaller mortgage.

Are you also referring to the difficulty in selling with profit in say 5 years due to expected similar financing issues next buyer will have?
is "$125K to 150K LESS" mainly related to that OR mainly to the financing conditions you would get as a buyer today?

Regards,
Neil
yes .. inability as in inability to qualify as a 6-plex (but a 3-plex only)

 

[housingrental]

This will depend on the specific market
A prudent investor should only purchase and (value in) legal suites
In certain markets there is a minimal premium for the illegal suites
In other markets the illegal suites are worth almost full $ currently - an exceptionally bad purchase