I passed on a property due to unpermitted work

[Frank S.]

Hi BPs, 

This is related to the Chicago market.  Perhaps, I am being too stringent, but that's how I would be able to sleep at night.  I found a property at or below market value, but decided to pass due to unpermitted work observed. The work was performed circa 2005 in light of the furnaces and water heaters age.  The installation looks great, but I can't see behind the walls and the deal price doesn't justify the risk, IMHO.

All plumbing, HVAC, electrical and even a room extension was done without permits. My position was that unpermitted work can haunt people down the road.  To me, this is a huge liability for it can be seen as "defective material".  

Properties rehabbed during the bubble - even with permits -didn't necessary get inspected, and even if inspected they didn't necessarily complied with codes. In Chicago, many inspectors were taking bribes, some were arrested. I am also cursed by my line of work in healthcare engineering design, we use municipal codes as the minimum requirements.

I ignore if unpermitted work is common in Chicago REI and I'm curious to hear what experienced investors think about this.

Anecdotes from friends:

Collapsed sewer in crawl space allowed sewage to overflow. Cleaning and repairs were expensive and involved  a lawsuit with previous owner. They settled at 75% costs.

Purchased property had newer waste and water stubs through the wall (copper and PVC). The previous owner only replaced the stubs and all piping was corroded.  New Owner had to remove cabinets, tile, and drywall to do partial repairs.  

Underground sewer installed back pitched required to open concrete at basement in order to replace it.  They also found a gas line with a rubber gasket patch. The line was previously damaged and rather than replacing it they simply used a gasket.

Someone said, "I rather pass on 10 good properties than buying the wrong one. There will always be another one. " Hence, I lowered my bid by $40,000 and I don't expect an answer.