I haven't ran into an issue like this before especially if you followed all of the guidelines for it to be a legal bedroom such as bedroom size, entrance size, egress, closet, etc.

I have bought a few houses after reading the foreclosure notices in the legal section of the newspaper but mostly I find opportunities by just talking to people.

Something else to check with your tax and legal advisors.

Please consult a real estate attorney for legal advice before you act on any comments in BP forums.

Skipping legal help here, especially for a 50/50 LLC, is asking for trouble.Disclaimer: While I’m a licensed attorney, I’m not your attorney.

Buy a property that perhaps has a legal suite or a duplex.

They then did the STR model (with permits) and are able to cashflow a substantial amount.However, this only legally works while it's your primary residence.I've got other friends that used their VA loan to secure the rare plex in Alexandria.

There is a possibility that you could keep this buyer under contract (for example if he tries to cause you legal trouble) if he is willing to wait (which he will if he is an investor who was underpaying you what you think itis worth As Is. 

I suspect a legal, permitted garage conversion ADU will cost ~6 times your estimate if hands off and probably at least 4 times your estimate if you do the finishes yourself.  

I'm also relieved that I hired a local real estate attorney to help create a county-specific, legal MTR agreement for our house-hacking situation.