Does anyone have info. on the risks of buying an investment property with an illegal unit (in good shape) in Richmond?

Asked by retirement investor, El Cerrito, CA Sat May 7, 2011

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Tim Page, , 99037
Sun May 8, 2011
Yes, I appraise these types of properties all of the time. Here's the kicker. When you go to refinance and the appraiser finds out that the home does not conform to zoning, then the bank will require you to remove the second kitchen or fix the condition before they give you any money. In some cases, the bank will accept these improvements if they are given no value. In most cases, I'd run the other way. Call your county or city assessor and ask what it will take to make the home conform to zoning. This will give you a good idea if it will be worth it. In some cases, it's as simple as removing the kitchen stove. In other cases, you'll have to tear apart the entire home or convert the garage or whatever it may be.
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John Souerbry, Agent, Fairfield, CA
Sun May 8, 2011
I have to agree with King, when you don't build to code, which can only be verified through the permit/inspection process, you open yourself up to tremendous liability if there is an injury caused by some feature of the building that is not permitted and built to code.
Besides, the appraiser will not include that unit in the value of the building when doing the appraisal for your purchase loan. Same thing when you eventually sell - you can't claim that the unit even exists for valuation purposes, plus many potential buyers will see the same risks I'm describing and pass on making a bid on the property, thereby potentially driving down the value.
I'm not saying pass on buying the building, but I am saying that if you are able to buy it, budget for getting the un-permitted features permitted and inspected and adjust your offering price accordingly.
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Kamal Randha…, Agent, El Sobrante, CA
Sun May 8, 2011

I've seen many properties sold with illegal units, the only thing is that the appraiser can not take into account the additional unit when appraising. Of course, there is always the risk of the city finding out and doing something about it, but it's very rare. This is from my experience of being in the real estate business for over 20 years, please do not take this as legal advise.
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Steven L. Sm…, Other Pro, Bellingham, WA
Sat May 7, 2011
I would be concerned about that. If you are renting it out, and there is an accident or a fire, it seems to me that you are pretty vulnerable to a lawsuit if the unit you own is not "legal". I own five rentals and try to make sure that everything is safe and pretty close to code -- steps, handrails, smoke detectors. My experience is that the municipal inspectors can get pretty nasty when they find an illegal unit on premises. They probably would not make someone tear it down, but I have seen places locally where a builder tried to sneak one over on the building department -- state duplex really a four-plex and the city shut it down bigtime. The builder went broke. And those people who bought it, to finish it, had to really jump through hoops to meet the demands of the city inspectors who were mighty angry. I always think it is best if the person who fooled the municipal inspectors is the one who has to deal with them down the road, such as at the time of a remodel, versus some poor person who bought an illegal unit. Just my take on this!
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