Existing unpermited addition in potential flip?

Question

Hello,

Newbie investor here. I am in the process of putting together my first wholesale, and have what may be a dumb question. The home has what looks to be an unpermitted add-on sun room that the owner built himself. It probably adds about 500 sq. ft., but I am unsure how that would factor into the ARV sale price if at all, since I have been basing comps off the base square footage of the house. I know I often see listings with descriptions like "non-conforming extra bedroom or sun room" in this area, so it happens. I am also wondering if unpermitted additions cause problems when flippers go to actually permit a renovation (e.g. if the city were to come for a visit, notice the room & make you rip it out).

Bryan Devitt · Answer

Price the deal as if you had to demo that area. Best case it stays and you make a little more. It really depends on the inspector in each town/city with what they'll let slide.

Bill S. · Answer

@Aria Drexler the age of the work can sometimes come to play. There was a time that they didn't track additions etc so people did work that the City never knew about (or cared about at that time) but it doesn't make it illegal or even non-conforming. Also make sure you are aware of annexations because sometime work done in the county didn't require a permit but work in the City did. The property was later annexed but the work already done when no permit was required. Sometimes fighting City hall on these issues requires an attorney or affidavits from neighbors or owners about timelines etc. This is probably not worth it for a sun room but if it was for a 2nd unit or something then it might be.

You are way in the weeds on this property. Your buyers (experienced rehabers) should know the answer to this for the jurisdiction in question. You can use it to negotiate with the seller but what if you get something from the City that it's ok and then the inspector sees it and makes your end buyer permit the old work?  I would disclose to my buyers the issue and let them handicap the risk reward.

Jon Holdman · Answer

This can absolutely cause issues when you start rehabbing.  Once you start touching something, anything that's already there is now your problem.  Sometimes inspectors will overlook old, unpermitted work.  Sometimes not.  Especially if you're fix and flipping for profit inspectors are going to be pickier than if you're a homeowner working on your own house.  The suggestion to assume you'll need to demo it is good.  If you don't have to, bonus.  If you do, you've accounted for it.  Most likely, if the foundation and construction is good, you'll just need to bring it fully to code.  Call the Greeley building department and have a discussion.  I have.  And I have no issues with giving a building department an address and asking questions about a specific property.  I've avoided a couple of troublesome deals that way, including one in Greeley.

Joshua Fulenwider · Answer

If it is good quality construction, I have heard of some work being permitted after the fact.  If it looks like junk it probably needs to be torn out.  Look for signs of settling (cracks in interior and exterior walls, sagging roof, sagging floor, bowed walls, etc)  to start getting a feel for the quality of construction.  Make your deal contingent upon it an inspection and then get a professional or someone from the city building department to take a look (even if it is a wholesale).

Another good indicator would be if it has financing on it from a known lender (any bank).  Something terrible would be noticed by an appraiser and probably commented on in the appraisal which would likely kill the deal for a bank.

Also, I'm in Greeley.  Let me know if I can help or if you are looking for an end buyer I'd like to take a look.

Aria Drexler · Answer

Incredibly helpful thoughts, Byron - thanks a bunch!

Byron Davis · Answer

Happy 4th of July Aria!

The best place to look for existing permits is at your local government's Department of Development, Permit & Inspection Division (or local equivalent). A quick google search for Greeley Colorado gave the following address (which BP would not let me post, its 1100 10th St, Greeley Colorado), and I didn't see an online database so you may need to call or stop by in person to search their records. It can certainly cause concerns for someone looking to flip the house, as their renovations will likely require a permit, and the inspector may not sign-off on the rehab with an un-permitted addition. If you find that the addition is not permitted, use this during your negotiations! The square footage of the addition should not be included in the total for the property, which should lower the price. Depending on the construction quality, you may be able to get the permit without much work and include it in the square footage of the renovated property. This may be an opportunity is disguise!

Oren K. · Answer

@Bryan Devitt - In many jurisdictions there is a status called 'Legal non-conforming' (or something equivalent). Basically it means that the city (or whatever is the permitting authority) has taken notice of the structure and deemed it OK even though current permits / standards /  zoning would NOT allow it.

Historically it covers stuff that was built before there was an authority or when the standards changed dramatically (e.g. knob & tube vs. copper for electrical). There would be revolt if they tried to force everyone to upgrade / retrofit every time the standards changed.

SO.. @Aria Drexler check with the local authority if there is such a status, what it applies to and if the sun room falls under it. If it does, an inspector has to ability to demand it be removed and you can market it with peace of mind.

Existing unpermited addition in potential flip?

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