Becoming a landlord is an exciting thought for many people. Put 10% down on a property, negotiate a great mortgage and sit back while the tenants pay the mortgage off for you. In the perfect world, you'd realize a steady property value appreciation of 6% per year, never experience an increase in interest rates, never have to fix anything in or around the property and have great tenants that paid their rent a day in advance...every single month.

Ding...ding..ding...wake up to the alarm clock of the real world! There are many variables in the real world of real estate investing.

Municipal By Laws. Yes, that's the topic of my blog today. Good old municipal bylaws. There's no lack of By-Laws on the shelves at any City Hall.  We obey by-laws every time we park our cars on a City street. Most people know that they can't have 4 junker cars in their City driveway.  We know that we can't open up a retail store in our subdivision house..unless the By-laws allow it. We live and abide by the By-laws because it makes the City a much more sane and orderly place to live. There's structure...and protocol.

So, let's take a close look at By-laws and Investment properties. If you've been scouring real estate investment listings you will have come across terms such as "Legal Duplex" being used as 3 Family Home....or "legal non-conforming duplex or triplex", or perhaps you've seen a single family home being used as a duplex, triplex or fourplex. The combo's seem to be endless. For years, these things never seemed to be much of a problem as long as the units were inspected by the Fire Department and deemed to be suitable for occupancy. The Fire Department has very strict codes to be followed. The furnace area had to be fire safe...dry walled in with fire resistant drywall, special ventilation etc etc. Special windows near fire escapes, inside entrances between units blocked with fire doors or closed off completely, wired in smoke detectors and fire alarm pull boxes at every door.  Basement apartments had their own criteria. One thing was for certain, if the property had a Fire Inspection Certificate, thousands of dollars had been invested and it was safe for habitation. 

Things have changed in Hamilton over the last 6 or 7 months. An 18 month Zoning By-law crackdown, dubbed "Project Compliance" was ushered in by Hamilton City Council in July 2010.  The City hired 6 part time Zoning By-Law officers to proactively uncover zoning infractions and enforce compliance. The 6 Project Compliance officers have law enforcement backgrounds and have been conducting blitzes in neighborhoods in Wards 1-8. If the property owner doesn't allow them in the property...they get warrants. If you are not operating in accordance with the zoning, then you will be fined and ordered to comply.

They have forced the removal of tenants and ordered the removal of kitchens in "unlawful" units...even though those same units had been retrofitted and deemed safe for occupancy by the Fire Department. This is a "Revenue Neutral" program...meaning that these 6 By-Law officers are suppose to earn their pay by fines...and they're taking their job very seriously.

I personally believe that this was a very ill conceived plan. One which has resulted in the removing of good, safe and affordable housing from the market and adding to the 5000 name list of people waiting for a roof over their head.

There is no discretion...if you have units and your zoning doesn't support them..YOU are in trouble. 

My advise to anyone buying an investment property in Hamilton...right now? Make sure that it is being used exactly how it is zoned. There are only 2 legal terms. Legal and Legal Non-Conforming. Make sure that on line 10 of your Agreement of Purchase and Sale where it say's "TITLE SEARCH:....to satisfy the Buyer that there are no outstanding work orders or deficiency notices affecting the property and that it's present use ................ may be lawfully continued.

If that blank is filled in with "Multi Residential or Single Family Residential...it's not specific enough. If you're looking at 3 units...make sure your Realtor writes "triplex or 3 family home"...and then it's up to your lawyer to confirm if it is a legal use. If in doubt, never hesitate to have your lawyer look at it first. 

If you think that you will buy the 4-plex and take your chances...knowing that it's really only zoned for a duplex, please consider what can happen if and when "Project Compliance" comes knocking. How would you feel having to evict a couple of tenants? Do you have some extra cash on hand if they fine you? Are you in the mood to rip out a kitchen or two? What are you going to do with the extra space in the building? How about your cash flow? Would you be able to cover the mortgage?

Investing in a rental property may be the best thing that you've ever done...but if it isn't done right...it may end up costing you everything! For more information on Project Compliance visit here