For me, when these issues arise, a quick email that they're working on it will suffice and then they can update me as they make progress.

Neighbours very often do not get along with renters and renters will often leverage their position if they find out a unit is illegal.The problem usually arises out of the fact that cellar dwellers are generally low quality tenants and can cause problems that often result in complaints to oficials..  

I'm not 100% confident in my answer, and I don't recall seeing this addressed on the forums.Can you please let me know how you address this question when it arises?

You can very quickly lose months or years of cash flow after a big theft or any number of issues that may arise with this class of property.

The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.servicingThe collection of mortgage payments from borrowers and related responsibilities of a loan servicer.settlement statementSee HUD1 Settlement StatementsubdivisionA housing development that is created by dividing a tract of land into individual lots for sale or lease.subordinate financingAny mortgage or other lien that has a priority that is lower than that of the first mortgage.surveyA drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.sweat equityContribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.tenancy in commonAs opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.third-party originationA process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.titleA legal document evidencing a person's right to or ownership of a property.title companyA company that specializes in examining and insuring titles to real estate.title insuranceInsurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.title searchA check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.transfer of ownershipAny means by which the ownership of a property changes hands.

What is crucial is location, product and property management.Detroit is actually a rising market, with big money coming in.

What potential pitfalls could arise in this type of business model (other than check your local and state ordinances, thats obvious)Any advice would be very helpful. 

And, a more important question, if these are family or friends, are you ready to lose them, if a bad surprise arises? 

Hi Chang,  a similar situation is arising in my unit complex in Scottsdale. 

MTM will allow you to make changes to the rental agreement in a more timely fashion whenever the need arises.