Friday, November 16, 2007

Straw Buyer

My wife and I need to do a 1031 exchange. We have a commercial property that is hopefully closing in January. Capital gains taxes are pretty steep, so we plan to take advantage of the like-for-like exchange that the IRS permits. This is one more example of how government regulations can influence your life...but I digress.

A year or so ago we visited the Silver City area of New Mexico. It has a warmer, but temperate climate at 6000 feet above sea level. It is more rural than the Front Range of Colorado and hopefully has a much slower pace. It has a university, a hospital, and enough essential services to satisfy our basic needs. Other than some city crime issues, it looks like a decent place to retire.

It is also a hot zone for alternative construction. A lot of funky "granola vernacular" found in the popular press has it roots in this area. It sounds like a great place to build that strawbale home I have been thinking about for the past decade. I prefer to have precedents in my neighborhood first to help ease the transition.

So onto the internet I go to see what is available. It turns out to be my lucky day. I found a nice 16ac. parcel complete with 2 strawbale structures already in place. Price looks okay. Hmmm.

In reading the fine print, I see that there is power to the site, but I am not seeing power to the buildings. There are 3 wells, but no septic system. I am beginning to sense a pattern here.

It is pretty apparent that these structures were built without building permits. Therefore, no utility release by the building authority was made so the local electrical utility could connect power to the buildings. No septic system provided, so no bathroom sewer discharge. Probably no running water either. Probably no bathroom...or kitchen either. Seems to me that the residential codes have always required that a house have at least one bathroom, a kitchen sink, and hot and cold water at all of the fixtures. Buyer beware. Being a straw buyer isn't necessarily as easy as it appears.

Like it or not, insurance agencies are not completely comfortable insuring structures that are not conventional. Then add the fact that no expert endorsement (i.e. Certificate of Occupancy) is provided, it is VERY unlikely that they will underwrite the structure. I am starting to get cold feet.

It is very important to know what you are buying. It may look good, but there may be some underlying defects. A lot of alternative housing has been built in areas with minimal or no building code enforcement oversight. A lot of "granola architects" choose these areas to avoid regulatory hassles. Unfortunately, a lot of my building official colleagues are not too comfortable issuing permits for homes using construction techniques that are not prescriptively addressed by the adopted building code. They are difficult to convince, so better to build the project someplace where there is nobody that needs least until the time one needs utility connections, insurance, or maybe even an appraisal for a new loan.

I always recommend building your alternative abode in a place that already has like construction. That usually means that somebody has already done the work of convincing the local officials to accept nontraditional methods. Once they get comfortable with a concept, they are more inclined to be permissive. But be certain to verify that the previous buildings were built with permits! The best way to that is to call the local city, town, county and determine if they have jurisdiction over the address in question. Then politely inquiry as to the process the applicant went through to obtain the permit. You will probably be able to get some sense of how receptive the department will be to your alternative request and what the process will look like.

If you want to be a trendsetter, you will need to do a little more work. I guarantee that you will not simply get a permit to build without some conversation. And you better have all of arguments prepared in advance. That will be the subject of another blog...or two...or three...or more. Promise.


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