Advice on an illegal 3 family

[Justin Repp]

Hey folks

So I am looking at a 2 family to purchase that has the potential for a 3rd (illegal) unit.  The current seller was a contractor who died 1/2 way through converting the 3rd floor into a 3rd unit.  As is, the numbers don't make sense as a 2 family, but as a 3 it would knock it out of the park.  

My question is what should I be considering in terms of liability if I do decide to purchase and rent out as an illegal 3.  Mind you, I can build it to code in terms of safety so I am not trying to be a slum lord by any means.  I just want to know what sort of pitfalls could be ahead of me that I am not considering.  Any feedback would be fantastic!  Thank you!

[Rich N.]

I tried to stay away from this type of scenario.  Because vindictive tenants can cause a lot of pain. Either accept it as a in-law suite/an extra bedroom for the other floor or finish the renovation and make it a legal 3.

Do you have separate utilities?  if Not, are you going to provide it "free" to both the legal and illegal unit ?

Also, the purchase price should be based on a 2 family.  Which kind of brings up an insurance question. In Massachusetts, if the paperwork says 2 family and the insurance adjuster comes out and finds a 3rd unit...how do you explain that ?