Site Lot Characteristics

Many investors fail to realize how important the size and features of a lot may be to a property's current and future value. Depending on the neighborhood, lot value can count for less than 10 percent to more than 90 percent of a property's selling price. Smart investors pay as much attention to the lot as they do to the building(s).

In addition to a lot's physical size and features (see appraisal form), check the types of government regulations that apply. Determine whether the buildings conform to zoning, occupancy, environmental, and safety regulations. Many two- to four-unit (and larger) properties have been modified (rehabbed, cut up, added to, repaired, rewired, reroofed, etc.) in ways that violate current law. Remember, too, laws change. Even if the property did conform, it may now violate today's tougher legal standards.

Land use law classifies properties as (1) legal and conforming, (2) legal and nonconforming, and (3) illegal. When a property meets all of today's legal standards, it's called legal and conforming. If it met past standards that don't meet current law, but have been "grandfathered," the property qualifies as legal but nonconforming. And if the property includes features or uses that violate standards not grandfathered as permissible, those features or uses remain illegal.

If you buy a property that fails to meet current law, buy with your eyes wide open. Lower your offering price to reflect risk. At some future time, inspectors may require you to bring the property up to code. Just as important, health, safety, and environmental violations may:

♦ Subject your tenants to injury,

♦ Stimulate a rent strike,

♦ Expose you to civil or criminal penalties (fines, prison).

Before you decide how much to pay for a property, verify code compliance. To bring a nonconforming property up to code might cost you thousands (or even tens of thousands) of dollars.

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