Without proper permits, there’s a chance the city may request you to revert any non-compliant additions (like the extra bathroom) to align with code standards.When it comes to refinancing, banks tend to look closely at the property’s legal compliance.

I do think they were trying to have a legit business, but I think it was out of hand and they weren't able to manage it properly.

Are they good with tenant and vendor followup to ensure job has been done and properly?

The other thing I often see is that over time, different homeowners/contractors have decided to DYI adjustments to their home aka took out walls, didn't shore things up properly, put in new doors, etc.My point is that what you are seeing is not abnormal for older homes. 

@Tyler Condon, it isn't proper but people do make side deals where the parties exchange money separate of the closing but at the closing table.

., smoke detectors, proper handrails).

Like you said, put the proper protections in place but know that you can still lose your money - unless you are in first position.

:Class A Properties:Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.Vacancy Est: Historically 10%, 5% the more recent norm.Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.Class B Properties:Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 yearsClass C Properties:Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation.

As long as its renovated PROPERLY and tenants are screened all should be good. 

If they are legal to live and/or work in the US they will have the proper paperwork and be issued the proper numbers to track them and run checks.