Buying a property with ADU and no permit

[Cassie Chun]

What risks should I consider when buying a property with an ADU that is not permitted?

The property is located in Hawaii on the island of Kauai. It is currently used as 3 separate rental units, including the ADU.

The appraisal (without ADU included) came in right where it needed to satisfy the lender, so that will not be an issue to close on this deal.

Permitting office has no record of a permit for this ADU and says it may have been "lost" after Hurricane Iniki.

Property tax records show the ADU, so seller has been paying property tax on the ADU. Seller is willing to initiate the permit process, but will not commit to addressing any issues that arise in the event the ADU does not meet code/zoning ordinance. Our agent identified 3 potential issues with the ADU as it stands now - 2 are related to zoning ordinance setbacks and the other is land coverage exceeding 50%.

I realize I would have the same problems when I decided to sell the property in the future.

If it cash flows to my liking, is it still worth pursuing, or should I walk away?