Non Permitted Work In Potential Purchase. Malden, MA

[Ryan Dooley]

Hello BP Community, 

New investor here looking to start his real estate career.  I have read through a lot of the BP forums but I haven't been able to find questions like the ones i want to ask. 

I have lived within the Middlesex county of Massachusetts all my live.  I have loved all the areas I have lived in and have always wanted to buy an investment property in the area.   However, as I am sure you all know, my area is very competitive with real estate.  Most listings don't last more than 2 weeks on the market before they are bought and are either at list price or higher. So for the past few years i have never found anything that I could compete with for offers.  A family friend is thinking about selling their house in Malden, MA. The family friend owns a single family home. Officially, its a 2 bedroom, 1 bathroom.  However, since they have lived there, they have added 2 bathrooms and finished half the basement and a slider door going outside.  They have admitted the work was done without permits.  The house also needs work, mostly cosmetic inside and a retaining wall.    With all that said, the family friend knows that work needs to be done on the house and that the work was done without permits, so they are looking to sell the house "as-is".  Also, because they know that the work was done without permits, they are looking to sell at a low price.    Given that I am a family friend and they know I have been looking for a place, they were willing to give me first shot if I was willing to do the work to either get the house back to what it was, or to try to get the added additions retroactively permitted and inspected and deal with the headache of that process.  With that, they were willing to potentially settle of a selling price of around $300,000- $320,000.  Nothing has been officially set as i told them i needed to do my research first.
Of course if i was to buy the house, I want everything to be permitted correctly/officially as it would be a rental property (and of course before its being used as a rental).  My goal would be to rehab the home and if the city zoning allows it (which i am finding out this upcoming week) I would like to turn it into a 2 or 3 unit property to keep long term (not a flip).  If the zoning doesn't permit it, I would still be ok with keeping it as a single family 2 bed 1 bath and just rehab it.  Comps in the area sell at around $580,000- $620,000 for a 2 bed 1 bath.  Multi-families in the area go for higher around $750,000.   Of course i would run the numbers if i decide to move forward with this.  I would love it to cash flow, but if in the end I only get the mortgage covered each month with renters, I am ok with the gained equity in the house if costs to rehab are low enough in the end.   

With all that information, i was hoping that someone could maybe shed light on what struggles/fines that i could potentially run into with the no permits problem.     I know that one of the worst case scenarios could be that the city says that I have to remove all of the unpermitted work and I would probably end up taking on fines, but i also heard that if i got a mortgage on the property and they found out about the unpermitted work, that the lender could call for the mortgage to be paid in full immediately. 

I know Im asking alot, and I am not looking for a yes or no answer on this deal as there as so many factors, but more looking to see if its worth pursuing and doing all this work if, with the information that i have provided, sounds like its a bad idea and not pursue.  

So to recap, here are a few of my questions.

1.  What problems will I being running into with the non permitted work.

2. Mortgage question is a concern.  What type of mortgage could I potentially get if I was to rehab the house anyway before turning it into a rental.

3. Probably wasn't going to use a real estate agent because its a family friend.  Was going to go straight to a lender and an attorney.  If i was to go that route, should i get an appraisal and home inspection on the house before I look for a lender or an attorney? 

Thank you!!