I'm looking at a multifamily 4 unit with a "bonus" basement unit in Illinois. Cash flow wise, it only really makes sense to do the deal with that bonus units cashflow contribution. • Are there issues that could come up with the closing? • Are there issues that could come up down the road? I.E. if I needed to renovate? • Should I underwrite this as a strict 4 unit, and call the 5th the icing on the cake?

I just recently dealt with this scenario on a recent purchase. 4-plex with an illegal 5th unit at the bottom of the building. Things to watch out for: 1. Appraisal - make sure that the 5th unit does not display as a unit. Pull out the stove and maybe the fridge. Technically, the fifth unit on the place I was buying was a storage area. 2. I would underwrite it as a 4-plex and if you choose to rent out the fifth unit that’s icing on the cake. 3. Renting out the fifth unit is a risk (one that many owners take quiet often but don’t think about the implications). You are exposing yourself to a tenant that could report you to the city, if there is an injury in the fifth unit you have exposure, and if the lender found out it could be an issue. Again, still might be worth it to rent it out, but be aware and try to mitigate the risk.

Hey @Ori Skloot thanks for the insights. So many people are all about "bonus" units, but it really seems like a lot of risk. I will definitely keep it in mind

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Updated over 4 years ago on 11/02/2020. Most recent reply

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Ben StaplesPoster

Investor
Chicago IL

General Landlording & Rental Properties

What issues can be caused by a bonus unit?

Ben StaplesPoster

Investor
Chicago IL

Posted November 01, 2020 14:04

I'm looking at a multifamily 4 unit with a "bonus" basement unit in Illinois. Cash flow wise, it only really makes sense to do the deal with that bonus units cashflow contribution.

Are there issues that could come up with the closing?
Are there issues that could come up down the road? I.E. if I needed to renovate?
Should I underwrite this as a strict 4 unit, and call the 5th the icing on the cake?

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