Typically its no Issue untIl you have to do an evictIon or when cIty fInds out.https://www.citybuildingowners.com/rules-for-new-york-city-basement-rentals/Read the article should have the details you are looking for..

Is it allowed from IRS rules?

@Robert ReineriAlso, certain distribution rules apply to solo 401k plan so you may not be able to take a distribution from the solo 401k plan unless you meet a distribution triggering event. 

@Linda MalavetThere is a special rule regarding taxation and collecting rent payments.Rent payments are normally taxed in the year collected.Therefore - I am not sure what the tax difference would be from having a 35 month lease vs a 36 month lease.

Many of the units are 50's and 60's models, and anything that old is going to put up a pretty heavy fight before those wheels will roll - and then you have to hope the axles don't start on fire after 2 miles.  

Redfin defines a price drop as a reduction in the list price of more than 1 percent and less than 50 percent.Talk about tweaking data to make a point.... lol.

It also depends on what type of asset you're investing in (for example, MFH versus storage versus MHP), in what market, what is the investment potential duration, what is a potential value add (if one exists for a deal), whether it is offered via Rule 506 b or c and many more other variables.

I wouldn't rule out single families in the area if you know how to execute that strategy.

What if they each have their own LLCs, and each of these LLCs has a 50%/50% owner of ABC LLC? 

I am making a list of "Safety rules" for tenants to get their acknowledgment via DocuSign  before the winter :)))