tax implications of buying 4-family to use as 2 or 3-family

Hi, I had been looking at 3-family homes, and happened to find a 4-family I might be interested in.  I’d plan to occupy two floors (maybe eventually 3).  But it needs work– not a gut reno but new mechanicals, plus updating of kitchens & baths, and I’m wary about 4-family homes triggering big tax hikes like this: http://www.nytimes.com/2005/02/20/realestate/20cov.html So, first of all I’m wondering if those huge hikes are routine or exceptional? But I also have questions about the implications of a couple of scenarios: – Would it make sense to legally change it to a 3-family, and THEN proceed to do any other renovations (like kitchens/ bathroom updates) once it’s in a less vulnerable tax class?  This seems like it would be more of a headache. – I’m not planning to do a gut anyway, so are there any issues with leaving it a legal 4 and occupying 2 floors (using it as a 3).  If I’m not moving walls or plumbing, just updating mechanicals/ kitchens/ baths, would that still cause a tax hike? Any advice would be appreciated.  I don’t want to bid on something I think I can afford and then get a big surprise tax bill. Thanks.

gemby

in Taxes 12 years ago

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Augustiner | 12 years ago

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you raise a good question: whom to ask about all of this There is no one stop shop for this, as it´s too many fields at once (permitting, taxes, fire code)
But the person most likely to be able to answer code and permitting related questions is an Expeditor or a very experienced architect.
A walkthrough with a contractor is always recommendable, but they will not be able to answer these questions. All I can do is raise awareness for some questions to ask.
– changing a C of O means you need to file a whole set of plans to show the occupany situation you want to create. It  is regarded “major renovation” by the DOB.
  And you need to comply with new Fire Code and all that.
  You need e.g. 90 minute fire rated doors to the common hallway, certain emerency egress situations and so on. They don´t care if you have beautiful old doors.
  Sometimes nonsense like Wheelchair accessibility can be a topic, depending on the inspector you get.
  If it all takes only a year, then you are fast. – there is a good chance you need to replace your whole sprinkler system, and you can´t reuse parts.
  Additionally your water main needs to be upgraded to 3″ to provide a higher pressure. my tip:
Just leave it as a 4 family, renovate under the radar.

gemby | 12 years ago

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Sorry, tried to type too much in the comments and it got cut off.  I know changing the C of O means sprinklers and fire rated walls/doors.  But does it mean the whole house must be up to code, or just the work that’s done?  Could I just do sprinklers (already has them, not sure if they are up to code), fire seperation and file and hold off on the rest?  I would like to get expert advice, but I’m new to this & not even sure what kind of expert to reach out to for these types of questions (contractor? real estate lawyer?) And Bobmarvin– thanks, I was unsure if rewiring could be done as a standalone project.  The walls/floors of this place are in good shape so I was not planning on a gut reno. I delayed bidding on the property in question to think through some of these things so I’ve probably missed it, but I will be more educated before looking at the next one!

Augustiner | 12 years ago

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Bobmarvin: yes yes, I admit I was a bit too dramatic in my first post Gemby: if you do cosmetic work as described (just updating mechanicals(depends…) / kitchens/ baths) then you won´t need a permit and I don´t see a reason why the city would increase the value of your house.
The article describes towards major renos, mostly SRO conversions (where you are forced to get permits for everything, and thw permit process makes the scope of work being done public)

Augustiner | 12 years ago

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You need a permit for mechanicals, and on a 4 family that is a bit difficult to hide. Get expert advice. If you change C of O, you need a new sprinkler main and sprinkler system and permits for everything. If you update mechanicals and sprinklers you’ll not want to leave the 100 year old electric system. You will most likely be doing a gut reno