One seller, two buildings next door, and the smaller one is legal nonconforming

Your 72k NOI is doing a lot of work with nothing under it. You listed taxes, insurance, water. You didn't list management, turnover, or capex reserve on a 1974 building and an older one next to it.

Run it again at 35 percent expenses on a master-metered older building and see where you land. 140,400 gross, 7 percent vacancy gets you 130,572 effective, 35 percent off that is 84,900 and change so NOI is more like 45k. That's a 4.3 cap on 1.05M, not a 7. I'm not saying 35 is the right number, I'm saying you have to defend whatever number you pick line by line or the lender will pick one for you.

Dumb question from someone still learning, but why is the small building priced at 70k a unit and the big one at 78k? I'd have guessed the conforming one with more units would carry the higher per-unit number and it does. So he's already discounting the 5. Is 350k the discount or is it still too much?

Call the planner back and ask for the answer in writing, including which section of the ordinance controls, and ask specifically what percentage of destruction triggers loss of the nonconforming right. Some places say 50 percent of value, some say 75, some allow rebuild within a set number of months regardless. It's local and it varies by municipality, and a phone call is not a record.

The second document I'd want before I priced the 5 at anything is the insurance binder language on ordinance or law coverage. Standard property coverage pays to rebuild what was there. If the code won't let you rebuild what was there, you need the endorsement that covers the gap between the old structure and what the code now requires, and the limits on that endorsement are usually a small percentage of the dwelling limit. Ask your agent to quote it with and without and read the exclusions. That number tells you more about the risk than the planner will.

Fourteen units across two adjacent buildings manages almost exactly like fourteen units in one building, which is the good news. One trip, one vendor call, one set of turns.

The part that isn't good news is master metering on the 5. Four one-bedrooms and a two, all on one water bill, with tenants at 700. You have no lever on consumption and no way to know which unit has the running toilet until the bill jumps. 6,400 a year across fourteen units isn't awful on its face but I'd bet most of it is coming from the five.

1974 walkup with six 2-beds at 950. What are those units actually renting for turned? If the answer is 1,100 you have a real story. If the answer is 975 you're buying it at the top of what it does.

And budget the turns honestly. Every one of these I've touched, the first three turns cost double what I planned because the last owner's idea of ready and mine were different buildings. Cabinets that look fine in photos are 40 years of grease.

On the rebuild question, the thing worth pricing is what it would cost to put five units back up on 9,000 square feet today. Not because you plan to, but because if the answer is 900k for a building carrying 315k of your basis, then the nonconforming status isn't your real exposure. The real exposure is that you're underinsured relative to replacement no matter what the zoning says. Get an actual replacement cost estimate rather than the assessor's number.

Also older building, four 1-beds, ask what the electrical service is. If it's 60 amp panels you'll find out at the first insurance inspection.

I'll ask the one I'd feel stupid asking out loud. If you buy both parcels at once, does anything force them to merge into one tax parcel? Because if they merge, does the 5-unit stop being a separate nonconforming building and become part of a fourteen-unit assemblage on 9,000 plus whatever the big lot is, which might actually be conforming in total?

I genuinely don't know if that's how any of it works.

Can someone define legal nonconforming for me plainly? I read it as the building was fine when built, the rules changed later, and it's allowed to stay. Is that it, or is there more to it?

@compass I read about merger doctrine last week and it's real in some places, common ownership of adjoining lots can force them to be treated as one, but it usually cuts the other way from what you're hoping. It can strip a lot of its own separate buildable status. @parcel that's a question for a land use attorney in that specific municipality, not for us.

@rigging that's basically it. The use is allowed to continue because it predates the rule. The catch is the rights are usually limited, you often can't expand it, and if it's destroyed or abandoned for long enough the protection can end. That last part is the whole reason parcel is worried.

Four one-bedrooms at 700 in a market where the 9-unit next door gets 775 for a one-bedroom. That gap is either condition or it's a landlord who never raised anybody. Worth knowing which, because one of those is 375 a month of upside sitting there and the other is a renovation budget you haven't written down yet.

Ask for the leases on all fourteen before you get much further. On a two-building deal like this I'd expect the small one to be mostly handshake month-to-month, and the security deposit accounting is where these get messy. Deposit handling rules differ state to state, including how they transfer at closing, so ask your closing attorney what your state requires rather than assuming the seller credits you at the table.

9,000 square feet is small. Even if you could tear the 5 down someday, you're not getting a meaningfully better building on that footprint under a 2,500 per unit rule, you'd get three units and a parking problem. So I wouldn't buy it for the dirt. Buy it for the 3,675 a month or don't buy it.

The framing I'd push back on is the ten day deadline. He wants both sold together because it's easier for him. That's his problem, and he's already told you what the 5 is worth to him by pricing the 9 at 735 alone. He'd rather have 735 today than market a small older building himself.

If the zoning answer isn't in writing in ten days, buy the 9 or walk. Nothing about this pair is so rare that another one doesn't come along.

Buy the clean one. 735k for a conforming nine with room on the lot, one financing conversation, one set of unknowns. The 5-unit adds an insurance question, a water metering question, a zoning question, and a variance you may never get, for 3,675 a month.

@keystone is right that the cap is fiction until you've got twelve months of actual bills. Ask for the tax bills, the water bills, and the insurance loss runs, all twelve months, both buildings.

I'd take the pair, but only at a price that assumes the 5 is worth land value plus the income stream for as long as it stands.

Fourteen units versus nine is the difference between a hobby and something that supports a real management arrangement. My eight taught me that the per unit cost of everything falls the minute you have enough doors to interest a decent vendor. Nine gets you partway there and fourteen gets you the phone call returned.

But price the 5 like it might one day be a parking lot. If 315k doesn't work under that assumption, counter at what does. He's already shown you he'll unbundle.

Two things nobody's said. Your 14,800 tax figure is the seller's current assessment. Plenty of jurisdictions reassess on transfer, and in some of them a sale resets the value to your purchase price. That's a state and county specific rule, so pull the last three years of bills on both parcels and ask the assessor's office directly what happens after a sale.

And if you finance both, ask the lender whether they'd cross the parcels on one loan or write two. One loan is simpler, but it means you can't ever sell the 5 without dealing with the release language, and a lender who knows the 5 is nonconforming may not want it as collateral at all. Confirm how they'd treat it in writing before you commit to the pair, because that answer might make the decision for you.