Who would not want a legal, permitted unit for $8k or anywhere close to that (i believe the $8k is likely optimistic)?  

There is some room for creativity here, but it takes careful planning and execution, and there is only so much you can push it before crossing the line from aggressive but legal to reckless and punishable.GROUP 2: Tax strategies that do not belong on the EOY to-do listForm an S-corporation.

Jonathan, I am not asking for legal advise, I said advise, without the word legal. 

Myself I think if one wants to get into real estate in CA you get into the bizz you get licensed so you can legally collect fee's you put in the hard work like most wholesalers have to now..

There are occasionally opportunities for grandfathering if there is evidence of legally established conversions that were done previously, but no permit records exist to show it was done. 

Clear communication and legal safeguards are essential for a successful partnership.

I'd have them sign my own lease on renewal and I'd make sure I had enough information on them so I can go after them if a legal issue arises such as employer and other similar data. 

Keeping your license and avoiding any legal issues is probably worth more than this one transaction.

I'm saying that if you had the option of paying taxes on $50K or $21K, legally, all things being equal, which one would you pick? 

This is why I stress the importance of knowing the laws and the strength of the legal system before investing in a particular market.