Too risky to convert and rent out illegal basement unit?

[Jack Plantin]

I'm in the middle of an deal for a legal two-flat in Chicago with FHA financing, but the numbers only work if I convert the basement into a livable space. FHA loan + expenses is $3000, Rental income with 2 units is $3k and the additional basement unit would be around $800-1000.

The basement has a separate entrance, but not 2 entrances/exits. Also I believe the utilities are connected to the 1st floor unit.

I just got an inspection done and sent EMD, but am having 2nd thoughts based on other people's sentiments about illegal units.

Please let me know if this deal is too risky to proceed with.