Downside risks for a self-renovated rental

[Hong Gao]

Hi, this is my first post ( after reading several books, attending webinars etc). My realtor friend talked to me about a single family unit close to a university. The owner did quite a bit of renovation (WITHOUT PERMITS) and turned into a rental for college kids. Current income is 2500K a month. It has been a solid income source for the owner. Owner relocated and would like to sell the house. It was 1600 SF and now with basement studio the total is at 2400 SF. Seller can provide financing. My question is since the renovations were done without permits, what are my downside risks? What are the ways to mitigate the downside risks?

[Will Gaston]

@Hong Gao the first thing I'd probably do is check with zoning and see if it is legal rental. He may not even be allowed to have the studio. If the answer is no, then I would walk away. Zoning is the first place to start in any college market. Many landlords try to sneak in extra spaces for extra income.

If the space is legal then I would get it inspected. IMO it depends on what kind of work he did without permits. Paint and flooring without permits? Not a big deal. Re-wiring and re-plumbing? Very big deal.