New Potential Listing - SFH Divided Into Non-Permitted Rentals

[Derek Wheeler]

I have a potential listing that surprised me, today, when I went to check it out for the first time. It is a nice little home near downtown Fort Worth, Texas. CMA puts it at about $130k. Not a big fish, by any means. So, when I walk inside, half of the house is closed off. It looks pretty decent inside (just small compared to outside) - 3 bed, 1 bath, updated kitchen, yada yada yada. But I was curious what happened to the rest of the home. My potential client says that she renovated it into rental units. Hmmm.

So, she took me to two doors around to the back of the house. Both opened into separate living spaces. Both had 1 bed 1 bath. One had everything you'd imagine in a home (albeit a tiny home) - kitchenette, bathroom, washer/dryer, and a bedroom. It was surprisingly very nice. But the other had only the 1/1, a small space for a washer/dryer, and a little alcove for a fridge but no kitchen. Both of the units are currently occupied and bring the seller about $800/month altogether. 

At first, I thought this was pretty cool. Rental income in a low-value home - could bring potential investors and others looking to have passive income. But here comes the problem: she didn't have the units permitted nor renovated by a certified/licensed professional (though both units are very well done). She has the blue-prints and plans all together for the units, but before she could follow through with permits, she got a divorce from her husband who was her business partner in this ordeal. So, now she has occupied units and wants to sell her home. What problems would this cause in the selling process? I've only ever done SFH listings.

Obviously, FHA loans are out of the question, I would think, due to non-permitted rental units. When listing this property, would we be able to accept offers from conventional loans or would cash buyers be our only option? And how would I price this listing? She doesn't want to put any more money or time into it. So, no permitting the units, no tearing them down and reintegrating them into her home, etc etc, and she wants to sell AS-IS. Sheesh... I went in thinking it was a SFH 3/2/2 and come out with a MFH 5/3/0.

TL;DR - SFH turns out to be non-permitted MFH. What proposed financing options would we be able to accept, and would non-permitted rental units default this home to not being passed by any appraiser, or would the appraiser leave out the rental units in the appraisal?