BiggerPockets

I'm planning to go see this house in a few days with a realtor. In the description it says it has an illegal garage conversion but "seller may convert it back to garage". Would you want the seller to do something like that, or just get a credit so that you can get your own person to do it?

Also, the house will not qualify for FHA. That''s not an issue for me in my purchase, and I plan to buy and hold for years, but could I get burned on my exit strategy because of this?

Not qualifying for FHA could either be some major defect in the home that will not pass the FHA inspection or it may not be seasoned yet - current owner has owned it less than 91 days. If its just a seasoning issue then it will not affect a buy and hold investor such as yourself. If it is a major defect they will have to disclose it. Ask more questions on this one.

Get the price reduction, leave it as is while collecting the rent, and make sure it is safe. No liability, rent in your pocket and credit to do the work when/if neccessary. Kinda like a triumprate of benefits!! Rich

Originally posted by Rich Weese

Get the price reduction, leave it as is while collecting the rent, and make sure it is safe.

Personally, I think this is bad advice...

Even if the renovation appears safe, if something happens that causes injury to a tenant or a tenant's property, you will open yourself up to a PERSONAL lawsuit.

Now, of course, anyone can sue you at anytime and for any reason, but that's why you should have a legal corporate entity that will limit your liability in the case of a lawsuit. But, in the case of negligence or wrongful conduct, even a corporate entity may not protect you from personal liability.

Negligence or wrongful conduct can pierce the corporate veil, so even if you own this property in an LLC or corporation, if a judge or jury determines that you were negligent by ensuring that an illegal conversion was not brought up to code, you could personally be on the hook, and all your personal assets could be put at risk.

For me, I'm not willing to put my entire net worth at risk just to avoid a few inspections and some contractor cost.

I'm not an attorney, so that's not legal advice...I would recommend you talk to an attorney before proceeding in the direction Rich suggested...

Originally posted by Rich Weese

There are many concerns with previouss post.

If there are concerns with my post, PLEASE let us know what they are.

Legal liability is a serious concern for all real estate investors, and if the information I provided above is inaccurate, please be more specific about how and where, so that we can all be more secure in our business transactions.

My only point was that negligence and/or wrongful conduct pierces the corporate veil and puts you at personal risk of liability.

Do you dispute this statement?

If so, why? I think that concept is pretty well established in legal precedent. What is incorrect about that?

Of course, if something I said was inaccurate, please let me know specifically what so that I can apologize to the original poster and we can all learn from this.

Unfortunately, I wonder if you are just saying this because you don't like my views on other topics. It would be a horrible thing if you let your personal attitudes towards me skew a discussion on something as important as legal liability.

So, please provide more info to clarify...

Originally posted by Rich Weese

I'm not at risk personally in any property I own, and never will be.

I'd love to hear more about how you structure your entities to avoid any and all risk...

I've spoken to some very exceptional attorneys, and the information I've always been given is that there is no way to avoid all risk, as negligence or wrongful conduct will generally pierce the corporate veil, and put you personally at risk of liability no matter how your asset ownership is structured.

I've never talked to an attorney that has claimed a way around that (no matter how many levels of corporate indirection you establish), so if you've succeeded in doing this, please share your secrets!

Rich - It sounds like you have some great information about how to structure your entities more securely than most of us...please, please share so that we all can learn how to better protect ourselves!

Thanks!

J Scott- I've just made the decision to not argue with you. I suggested the poster go see attorney and insurance company. He could print both posts and get accurate, legal advice, not just innuendos from NON licensees.

I've posted previously on BP how my entities are exemt. If you really want info on them, go read them/ I stand by my post, and don't have any interest in argueing each line with you. The poster can go get legal advice and determine if there are concerns in your post. have a great weekend. Catching another plane. Good luck. Rich.

Bienes, when you say its illegal, what is it that makes you say that? Is it just shoddy work? Has the city issued a stop work or refused to grant a certificate of occupancy? Has the seller admited they did the work without permits?

Lots of work happens on houses without proper permits and inspections. Contrary to what they show in TV shows and movies, I've yet to encounter a building department that had detailed blueprints for every building. So, while you may be able to find out about recent permits, the odds are that any house more than a few decades old has some permitted work somewhere in it. And it may or may not be possible to figure that out. Just my opinion.

Further, over time, building codes change. A 50 year old house that's never been touched would certainly not conform to current codes, and would very likely have some real dangers. No smoke detectors, no GFIs and probably no grounded outlets just for starters. Buying such a house doesn't necessarily mean you have more liability than a brand new house. Not that I'm a lawyer and can speak to such things.

But if you have known problems, you probably are more on the hook than if there are unknown problems.

Originally posted by Jon Holdman

Bienes, when you say its illegal, what is it that makes you say that? Is it just shoddy work? Has the city issued a stop work or refused to grant a certificate of occupancy? Has the seller admited they did the work without permits?

Lots of work happens on houses without proper permits and inspections. Contrary to what they show in TV shows and movies, I've yet to encounter a building department that had detailed blueprints for every building. So, while you may be able to find out about recent permits, the odds are that any house more than a few decades old has some permitted work somewhere in it. And it may or may not be possible to figure that out. Just my opinion.

Further, over time, building codes change. A 50 year old house that's never been touched would certainly not conform to current codes, and would very likely have some real dangers. No smoke detectors, no GFIs and probably no grounded outlets just for starters. Buying such a house doesn't necessarily mean you have more liability than a brand new house. Not that I'm a lawyer and can speak to such things.

But if you have known problems, you probably are more on the hook than if there are unknown problems.

Jon, my hunch is that there is a driveway leads into a... bedroom. If I'm a buyer, the first thing I would ask, "is that a conversion?" And if the answer is "yes" my next question would be "Did you get a permit for that?" Now if the answer to that is. "I don't know, it was done before I bought the house", than there is no issue

It said "unapproved" in the ad, not illegal--my mistake. Also, as it turns out, this is an REO, if it matters. I thought it was a regular seller at first because the ad doesn't give indication that it's an REO, but then I found out otherwise.

Originally posted by Bienes Raices

It said "unapproved" in the ad, not illegal--my mistake.

Same thing, assuming permits are required for structural changes in your jurisdiction (almost certainly yes)