Should I Buy a Cashflowing Multi-Family That has Permit Issues?

Question

Here is the situation: I found a good multi-family home in upstate NY. It's basically a legal 2-unit that can cashflow $900/month. Economically growing area. GREAT in today's market obviously.

However, the house has had a new kitchen and bathroom put in WITHOUT permits. Basically, one of the floors was just empty, and they installed a new kitchen and bathroom. It wasn't the current owner who did this, but 2 owners ago. The current owner has had the property for 7 years and has been renting it out without issues.

If I buy the property, I'd want to get the property up to code, so I'd work to retroactively permit the work. The house is selling for $380k. Even if getting the permits winds up costing $30K, to me... it still seems worth it.

Does anyone have any experience with something like this? What's the process of getting retro-active permits on work like this? How much could it cost?

Jonathan Greene · Answer

The only answer is no. If you aren't a contractor or aren't getting rock-bottom pricing, what is the point? You are taking over for someone who didn't care at all about the rules and you want the city to just be like, "yeah, this is fine"? The bigger problems is that you are overdoing how good the property is. You said good and GREAT in the first sentence, but those don't go with unpermitted kitchens so you are trying to convince yourself it's good, but it's not.

JD Martin · Answer

My question is why you want to bring it up to code, other than just to feel good or improve your exit strategy? It will be a can of worms for sure and they may go as far as requiring a full tear out and fresh submittal. I know in my area they can require it, and we are nowhere near as strict as NY.

Mohammed Rahman · Answer

you can usually get retroactive permits, but it takes some work. First, you’ll want to bring in a licensed contractor or architect to check out the kitchen and bathroom. They’ll let you know if everything looks up to code or if there are issues to fix.

Then, head to the local building department and apply for the permits. You’ll probably need to submit plans or drawings of the work that was done. After that, an inspector will come out to check the space. If anything’s not up to code, you’ll need to fix it before they sign off.

As for costs, you’ll have permit fees—those can range from a few hundred to a couple of thousand dollars. If the work needs updates, that’s where it can add up, but $30K sounds like a reasonable cushion based on what you’re describing.

It sounds like a solid deal, especially if the cash flow is good. Just factor in a little time and effort to get everything squared away, and you should be fine!

Dan M. · Answer

You could force the seller to bring it up to code before the sale is complete as one of the contingencies of buying it, let them deal with it. Alternatively, if the bank ( assuming there is a bank) is fine with it, you could negotiate a credit and escrow the funds to be released after you do it yourself.  It would be wise to rectify it before transfer of title so your starting off clean and hopefully won't have any issues when you go to sell down the road.

Nate Monson · Answer

@Roman Balmakov If you are planning on holding the property long term and have enough reserves to cover even worst case scenarios it could still be worth it. But consulting with the town would be good to try to understand what they're permitting process is like. Determining the cost on something like this is only something you'll be able to find out by talking to the city. Good luck!

Roman Balmakov · Answer

They were total add-ons. The space was empty before. I would be surprised if the city *doesn't* require the walls to be opened.

Ben Trageser · Answer

I would talk with the town and see how strict they are. With permits, it can be anywhere from having to rip something out to the town just checking it out and giving it the okay. Since the repairs were two owners ago, I would think the town may be a little more lenient with you.

With the new kitchen and bathroom, were they existing and just got renovated or were they added on? I would be more hesitant if they were added on (new plumbing and electrical) vs just upgrades to existing.

Should I Buy a Cashflowing Multi-Family That has Permit Issues?

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