California Central Coast 3 Unit Deal

[Owen Schwaegerle]

Hello BP Community,

I am currently in the process of analyzing a deal in Orcutt, CA, not far from Santa Maria. It seems like an awesome opportunity, but I wanted to get some feedback and insight from some pros.

The property has 3 units on it. The first is a single family house that is 4 beds/3 bath, the second is 2 bed/2bath, and the third is a studio. The total monthly rent for the property would be $4700/mo: Currently $2100 for the main house, the owner lives in the 2 bed unit which would rent for $1500, and the studio is rented out for $1100. The lot is 25,000 SF, so there could be potential development opportunity.

The owner is an old school real estate investor that does everything himself. He is now looking to downsize and take it easy. The exciting part is he is willing to owner finance the property! He is extremely flexible on price and terms. One scenario he said he would do was to sell the property for $650K at 5-6% interest with 20% down. 

This sounds like a great deal to me, but when I started looking into it I discovered that the studio does not have a certificate of occupancy. The construction permits are for a "garage" which is technically unlivable. So isn't that illegal? Also, the property is zoned single family, so wouldn't putting 3 different families on that property be wrong?

This would be my first deal, so I don't want to break the law. Any insight you all can provide would be great!