Unpermitted Additions in Refinance Appraisal

[Kareem Arnold]

Hello,

I recently purchased a single-family home in Hawthorne California, all cash for 500k using a hard money lender. The property was in bad shape and I'm using another lender to provide the repair cost of 50k. The home was initially a 3 bedroom 1 bath with a massive unpermitted enclosed den attached. I started the repairs and remodel yesterday and the plan is to turn 1 of the bedrooms into a 2nd bathroom and use the den as a master bedroom for myself. Repairs will be finished in two months after which I plan to house hack the property, the two permitted rooms will be rented out.

In order to pay the hard money lenders back, I will need to refinance the property. Will the fact that I have an unpermitted bathroom and bedroom massively nose dive my appraisal value? What is the impact of unpermitted rooms on the value if any?

[Nick Hedberg]

Everyone that has chimed in is correct. Get the permits while you are doing the work, it will pay off in the long run having extra square footage. Plus it’s cheaper to do it now while under construction.