Buying a 3 Family with a non-permitted 4th Unit - Central Massachusetts

[Mark Esperti]

I have a 3 family under contract in central, MA. This is an off-market deal. The property has been in the same family for 30+ years and has been well maintained. The owner built a 1 bed apartment in the basement nearly 30 years ago and did pretty a nice job. It checks all the boxes to be legal - 2 egresses, windows, 7' ceilings, bathroom, full kitchen, etc. The non-permitted unit is causing some troubles in getting this deal to move forward. One - the bank doesn't want to use the income in the pro forma, suffocating my DSCR. Two - In my due diligence, it looks like the only real option to make this unit legal is a special permit and variance, therefore, causing me to update the whole building with sprinklers, fire alarm, and meeting stretch code (certainly not enough meat on the bone for this route).

There are a few other options and long shots I can think of, but I am wondering if anyone might have other ideas or insights?

1.)  Combine the basement with the 1st floor unit and remove the kitchen.  This will add about $600 in potential cashflow to unit #1 but has an overall negative cashflow affect of $1000/month from a 4-unit as existing.

2.) Hope and pray that the upcoming MA state ADU law will allow for ADUs on 3 families without needing to be owner occupied and without triggering major building upgrades.

3.) Continue renting the unit out, like it has been for the last 30 years.  

Any other ideas, input, or things I should be considering?