Interesting dilemma

[Michael Bell]

So I have an interesting dilemma. My wife and I are currently in escrow on a 3/2 SFH in Central Florida. This home has a garage that has been converted into a mother-in-law suite with its own kitchen, bathroom, and separate entrance. As a matter of fact, the inside of the whole house has been rehabbed. New appliances, cabinets, bathrooms, etc. So of course, the first thought in our mind is to rent it out as a duplex. One 2/1 and a 1/1. The first issue is: the house is not submetered for electrical. Second issue: The house is on well water and has its own septic system. The owner has owned the property since 2011 and claims the system is only 2 years old, but seems to not be able to furnish any proof (Hmmmm, interesting). Third issue (my personal favorite): The tax records on the house lists it as a 1 bedroom/ 1 bath house! That amazes me, but everything my property manager, loan guy, and realtor can pull up says the house is permitted as a 1/1. So we are positive it will not appraise anywhere close to our agreed upon price. We just completed the home inspection yesterday. Everything came back pretty good. Actually not bad for a house built in the early 60's. The inspector did note that the house is a older wood frame home on a well water and septic system. He strongly recommends that we get water treatment system, septic, and termite inspections. I strongly agree with this. He also noted that a lot of work as been done on the home over the years. I'm betting most of it was not permitted. I am very wary of dumping any more money into this place. Right now I'm only $350 in for a home inspection. The appraisal is gong to run me $600 or so. Not a big deal, that's the cost of doing business. I just don't want to waste my time and money on extra inspections for a house that I might not buy. I am pretty sure the house will not appraise at the agreed upon price of $140K. The owner will have to come down on the price. This could end up being a good deal, or I could end up buying a home with a ton of problems. Or I could spend a whole bunch of money for nothing if the deal falls through altogether. On a side note, an awesome lesson I've learned on this property so far is to look at the tax parcel info on the property before I offer. Anyway, I am certainly open to suggestions on how to proceed. Looking forward to hearing from you!

[Brendon Woirhaye]

Does your loan guy think they will lend on it?  Some lenders won't lend on a property that has unpermitted units, and you've already identified the appraisal issue.