Illegal 4-Family set-up, to buy or not to buy?

[Seth Bronko]

I have a lead on a potential off-market deal. The house is a legal 3-Family dwelling, but is currently illegally operating as a 4-family (the 2nd floor was split into "separate" units). According to the numbers, it would be a great deal as the 3-family it should be! It would be my second 3-family house in my portfolio, and they're close in proximity.

The current owner wants no part in taking care of the illegal set up. Does anyone have any suggestions on how to proceed making a deal, or if it should be avoided altogether?

After figuring all the numbers including PITI, maintenance and repairs, cap ex, etc the house should have a CoCROI of about 17% yearly. And that's with an under market value rent on the 3rd floor. It seems like a deal too good to let slip away, but dealing with the illegal set up is something I have no idea about.

Any thoughts or suggestions would be greatly appreciated!