Should I purchase a home with an un-permitted unit?

January 5, 2023

Long before accessory dwelling units (ADUs) became a hot buzzword in California Real Estate Investing circles, homeowners across California, especially in urban areas such as San Francisco, Oakland - Berkeley, and San Jose, were adding additional units to their properties, either for themselves, their families, for extra income, or all three over time. Sometimes these were permitted by the local building authorities, but more often, due to government bureaucracy and restrictive zoning covenants, these were done without the benefits of permits oversight from local governments. As such, these un-permitted units can vary widely in condition with respect to building codes.

There are many multi- and single- family properties in the Bay Area that have un-permitted units. These may also be known as illegal units, illegal accessory dwelling units (ADUs), or un-permitted units. Some Realtors may also not explicitly use these terms, instead placing a disclaimer such as “buyer to verify legality of extra unit” or “buyer to do due diligence on unit count” in their listing descriptions.

Firstly, it's important to note that un-permitted units can come with significant risks and potential liabilities. For example, if the unit is not up to code, it may pose safety hazards for tenants or violate zoning regulations, which could result in fines or legal action. Additionally, if the un-permitted unit is discovered by local authorities, you may be required to remove it or pay penalties.

Secondly, if you're planning to finance the purchase of the building, lenders may be hesitant to lend on a property with un-permitted units, as it can make the property more difficult to sell in the future.

That being said, purchasing a multifamily building with an un-permitted unit may also come with some benefits. For example, the additional unit could provide an additional stream of rental income, which could increase your return on investment. Additionally, if you're able to obtain the necessary permits and bring the unit up to code, it could increase the overall value of the property.

Ultimately, whether or not you should purchase a multifamily building with an un-permitted unit will depend on your specific circumstances, risk tolerance, and goals. Before making a decision, it's important to thoroughly research the property, consult with professionals such as a real estate agent, attorney, or inspector, and carefully consider the potential risks and benefits involved.

In our next post, we’ll be discussing the process for obtaining permits for an un-permitted unit and bringing it up to code. Stay tuned!

Legalizing an Un-Permitted Unit

January 20, 2023

Legalizing an un-permitted unit can be a complex and time-consuming process, but the difficulty level can vary depending on a number of factors. Here are a few considerations that may affect how hard it is to legalize an unpermitted unit:

1. Local Regulations

   The difficulty of legalizing an un-permitted unit will depend on the specific regulations and requirements of your local government. Some areas may have more lenient rules for legalizing un-permitted units; in fact, as of this writing, Oakland, San Francisco, and Berkeley all have unit legalization programs or amnesty programs as of this writing, while others may have strict requirements or may not allow it at all.

2. Building Code Compliance

   Not all un-permitted units were built equal. I’ve seen un-permitted units where you it was 100% built to code, and others with 6’ ceilings. If the un-permitted unit was not constructed to meet building codes and safety standards, you may need to make significant renovations or upgrades in order to bring it up to code. This can add to the difficulty and cost of the process. For example, if there are no egress windows in a basement unit, or the ceiling height is under 7’, these conditions may result in very significant costs for upgrades.

3. Legal & Professional Assistance

   Depending on the complexity of your situation, you may need to seek the help of a legal professional and an architect to navigate the process of legalizing an un-permitted unit. This can add to the cost and time required to complete the process.

Overall, legalizing an un-permitted unit can be a challenging process, but it is often worth the effort if it enables you to bring the unit up to code, reduce liability, generate additional rental income, and create additional property value. It's important to thoroughly research the specific regulations in your area, consult with professionals as needed, and be prepared for a potentially lengthy process.

For our next post, we’ll be discussing building an ADU on your property.