Jakyjeanjose…, Home Buyer in Bedford - Stuyvesant,...

Legal 2-fam is renting as 3 units. Broker incl all 3 in calc of cap rate. Is third apt safe after reno? Should it affect the price?

Asked by Jakyjeanjoseph, Bedford - Stuyvesant, Brooklyn, NY Fri Jul 26, 2013

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Absolutely it should affect the price, and in continuing to rent out an illegal apartment you expose yourself to multiple risks, including fines, etc., should you be caught, while you will be unable to exercise your rights as a landlord, including the right to evict non-paying tenants, from the illegal apartment.

Building code requirements differ for 2 and 3 family homes; for example, 3 family homes are now required to be sprinklered throughout - the cost of this is about $50K - $60K, so you should keep these costs in mind if you're considering applying for a new 3 family Certificate of Occupancy, which you would need for it to be considered a legal apartment.

Furthermore, there are specific rules with regards to below-grade apartments (basements, English basements, etc.) In most cases these can never be considered legal living spaces.

Consult your lawyer for full information.
1 vote Thank Flag Link Fri Jul 26, 2013
Thank you
Flag Fri Jul 26, 2013
If it's a legal 2, it should be priced as a legal 2 because I can certainly tell you it will appraiser as a legal 2. Broker should know that.

If my response was helpful, consider clicking BEST ANSWER!

Javier Meneses
Senior Loan Officer
NMLS #23130
STERLING NATIONAL BANK
310 Crossways Park Drive
Woodbury, NY 11797
jmeneses@snb.com
(516) 606-9648 Cell
(516) 740-4478 Office
(516) 918-5383 Fax
2 votes Thank Flag Link Fri Jul 26, 2013
Operating a two family as a three family is illegal and the building has a diminished value because of the huge liability that you will be taking on.
A legal two family used as a two family has a higher value.
Just as another Broker mentioned; not only can you NOT collect rent from the third apartment, you cannot evict them. Also if there is a fire or some other catastrophe and an occupant gets hurt, you as the owner can be arrested on criminal charges and no insurance company will pay out on a claim regarding illegal occupancy.
Also Banks will not lend on two family with three kitchens in it, and obviously used as a three family.
Yours,
Kathryn Lilly, Broker
Realty on the Greene, LLC
718-858-7600
2 votes Thank Flag Link Fri Jul 26, 2013
In fact, it might be valued slightly less than other legal 2 family homes because of the fact it's being used as a 3.
1 vote Thank Flag Link Fri Jul 26, 2013
The 3rd apartment should not be included in the calculation. And, yes, it should affect the price. A two family is worth less then a 3 family. Also, if you buy the property and the city discovers the third apartment you will have a problem on your hands.
1 vote Thank Flag Link Fri Jul 26, 2013
Broker shouldn't include an illegal apartment in the cap rate.
He/she should know that...

And yes, it should affect the price.

Luke Constantino
Realtor
Commercial/Residential
Keller Williams Real Estate
9120 4th Avenue Brooklyn, NY 11209
Office: (718) 954 8400
Direct: (212) 300-3919
lukeconstantino@gmail.com
1 vote Thank Flag Link Fri Jul 26, 2013
Hi Jakyjweanjoseph
Not sure is this a question or a statement? it appears you already know the answer it is a LEGAL 2 family??
0 votes Thank Flag Link Fri Jul 26, 2013
The broker is representing the cap rate as inclusive of all 3 units. I am simply asking to see if there is a loophole or some information I do not have that would allow this. Thank you for your response.
Flag Fri Jul 26, 2013
Broker shouldn't include an illegal apartment in the cap rate.
He/she should know that...

And yes, it should affect the price.

Luke Constantino
Realtor
Commercial/Residential
Keller Williams Real Estate
9120 4th Avenue Brooklyn, NY 11209
Office: (718) 954 8400
Direct: (212) 300-3919
lukeconstantino@gmail.com
0 votes Thank Flag Link Fri Jul 26, 2013
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