Thread: Single family is really a 2 Family-What to do?

Originally Posted by ukikkgr

My mother-in-law is disabled and we've been looking for a mother/daughter situation for our first home to buy to move her in with us. Currently she lives on her own in a rented apartment about 40 minutes away. She has a progressive strain of MS and has recently lost the ability to walk.

We've recently found what we believe is the perfect property. A 1100 square ft ranch house built in 1940 that had a two story 800 sqfoot addition built off the back in 2003. The current owners who built the addition are using it as a single home and the addition as a space for their day care business. although it has a seperate utility meter, and a kitchenette (just a sink and fridge) it is still connected to the house (there is no doorway or wall that seperate the two). The listing is $370K, taxes $4800 and my agent believes we can talk them down as low as $330K. When talking to our broker he gave an immediate 'Uh Oh" and noticed it has been assessed as a 2 family residence not as a single family house. My broker is indicating that this will make things a bit dicey. For one I wouldn't be able to be approved for 100% financing conventional(most programs will require 3% or 5% down) and our PMI would nearly double. This is a real grey area... even as the area they consider an 'apartment' would need some significant modification before it could be a rented space. My guess is the owner had a friend on the village board... because it's a considerable stretch to consider this living area a 'legal' seperate apartment.

I believe my broker, I'm just trying to understand my options . The OLP was $410K and it has been listed since 6/07 and without trying hard the listing agent dropped the price to $355K (which tells me they are having a hard time moving this property). I'm trying to keep my monthly around $2700 per month. If the taxes go up (after a reassessment) or the PMI doubles it will price me right out.

The listing reads btw

Property Type: Single Family Home
Multi Family hse currently being used as a 1 family,, 2/3 bdrms in main hse,2 bdrms in potential rental. one small wall/door needed to seperate. one small wall/door needed to seperate. Mother/daughter or legal 2nd family with own entrnce.

Is this worth the hassle or should I move on?

I would say that if you like the house and can afford it then buy it. I property coded for two homes is a good investement. The future possibilites are good. I would think this property would have a higher resell value in the future as well.

just my 2cents.

I agree that the upside on a multi-family property would be nice, looking to the future. You could try to have it rezoned to get the better mortgage, but I don't know if it would be worth it in the long run.

Well, I'm trying to see potential... but all I see are problems.

# 1- this isn't like a large single family with an apartment attached... the size, layout, and flow makes this more like a small single family with a few family area rooms at the end of the house converted into a large apartment. The current owner's suggesting a wall or a door to separate. I plan to use it as a single fam... but if I were a buyer who would also want to rent, I think he's nuts. The conversion cuts the house almost in half. And converting the 1900 sq feet just creates two small and awkward living spaces. In other words, I really don't see the investment potential... especially in the upstate area I live in where brand new 2400 sq ft single fam colonials are going for the same price.

#2- The age of the home (1940) doesn't play all that well in a town where there was booming subdivision construction. It has some nice updates... but overall it's still a 60 year old home (small, cramped rooms) competing against cathedral ceilings and open floor plans. I can live without the modern features given the situation with my ML... still, this place has alot of work to be done.

I'm sure they thought this was a smart move in a hot housing market... appeal to both sides of the fence. But now that the bottom has dropped and no one is knocking on their door anymore... this will make it a difficult sale. At best it's a nice medium sized single family home with great mother daughter potential. Split into two rentals you now have two awkward, smaller living spaces. I'm guessing the owner got some bad advice somewhere.

Around here it is not multi-family unless there is a stove in both units. Lots of people have 2 refrigerators and auxiliary sinks in single family homes. With no separation between the living areas it really is only single family.

Talk to the town and talk to your lender. If it is zoned multi family then that means nothing. There are a lot of single family homes in multi family zones. If the property is being taxed as multi family get that fixed as it is a mistake.

If you are not renting it out the lender might not care.

The biggest challenge my broker sees is a lack of real comps in the area. He's afraid because of the zoning and the design of the house it will be considered a 'unique property' which could make an appraisal a real challenge.

By any chance is your broker trying to get you to buy one of his company's listings instead of this one?

If it is going to be a challenge for the appraiser then the appraisal will come back low which would be good for you. I don't understand the problem. If it is overpriced for the neighborhood then make a low offer.

I doubt that the zoning has been changed for just one house. That is illegal for governing authorities to do. It is called spot zoning. They have to zone whole geographic areas when they make a zoning change.

I meant my mortgage broker. He believes that the lack of comps may make mortgaging it more difficult. "There has to be other 2 unit comps.......recent sales.......if there aren't then the home will deemed unique and you won't be able to get financing". This is a small town... this is a regular single family home that they added an extention to the back, put in a separate utility meter and kitchenette and bath and had the property class changed to 'legal 2 family residence' so there are not alot of recent sales of this kind. The current owner who made these changes has never rented this out as an apartment. They are using the house as a single family and using the common room of the extension as a room for her day care business.

And yes... I believe they must have had a friend on the planning board.

EDIT:
There is another snafu I've JUST discovered. On the Tax/Property Data records for the county I see the extension is not even listed. They list the house as 1,496 sq. ft.. The house is 1926 sq feet. So the extension that they built in 2003 to make this a 2 family residence isn't even on the tax record!? Taxes for 2008 were $4800. So if this gets reassessed the taxes will surely go up.

Originally Posted by ukikkgr

Well, I'm trying to see potential... but all I see are problems.


....In other words, I really don't see the investment potential... especially in the upstate area I live in where brand new 2400 sq ft single fam colonials are going for the same price.

.

With the things you have stated I do not see why you would want to buy the house then. I understand that you need a place for your mother, but it sounds like you should be able to find something else. If all you see are problems it's time to move on.

Sounds like your mortgage broker is trying to fit the house into a program it does not fit into. 100% financing is pretty difficult to get for any property right now, let alone non-typical homes. Why are newer larger homes selling for the same price as the one you are interested in? Are the neighborhoods comparable?