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Updated about 3 years ago on . Most recent reply

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John Schulz
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What risks come with renting out an illegal in-law suite?

John Schulz
Posted

Hi all! I'm a beginner in the Chicago area and I'm just learning the ropes around REI before purchasing my first rental property. I've seen a lot of properties that have finished basements that could be rented out for additional cashflow, but these are typically considered "illegal" in-law suites.

Despite being illegal, it seems everyone is renting out these units, and a lot of investments wouldn't make sense without the cashflow provided by these units. What are the risks involved with renting out an illegal unit? How should I account for these risks when evaluating a property?

Most Popular Reply

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Prashanth Mahakali
  • Architect
  • Chicago, IL
127
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90
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Prashanth Mahakali
  • Architect
  • Chicago, IL
Replied

@Jonathan Klemm Thank you for mentioning me! @John Schulz Your question and predicament is quite a common one. Here is one way to answer it. Have you ever gotten a traffic ticket? What went through your mind? Were you not fazed by it or did you want to handle it right away? How you react to a potential "at fault" situation will help you make a decision. Some people are unfazed and let a building violation drag on as long as they can with a good attorney's help. Some cant go to sleep unless it is handled. Buying an investment property is supposed to be about numbers in a proforma. What one doesnt account very often for is the price of emotions.  If you get a bnuilding that has an illegal unit, chances are you will have to deal with it eventually. Just a question of when? My recommendation is to get a building that has an open basement. Understand the process of establishing a legal unit there and get it done eventually. If an opportunity only works due to the rent from the illegal unit, you have to account for what if you cant have it anymore. The summary is to be careful and understand the risks. Good luck! 

  • Prashanth Mahakali
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