Private seller running multifamily under the table

8 Replies

Hi BP:

Just had a conversation with a private seller who has a 1600 sqft multi for sale in PA. He was living in the house with a buddy and about a year or so ago he did a rehab that converted a 3/1.5 to a 6 BR/6BA. 

He's a plumber and did all of the construction, electrical, plumbing work without permits. He's not on the books with the local municipality, and therefore has not gone through any safety inspections, has no fire safety or egress means in place and is not paying taxes on the increased beds and baths. He uses no leases, only collects rent in cash, and likely doesn't report the income.

We would never run our business this way, just not worth the risks. We've run into this a few times with local multis. 

Besides this guy dropping his price so we could mitigate these issues, are there any other comments/ideas how to solve this? 

Thanks.

you're in for more than safety inspections and permits, you're probably going to have to deal with zoning issues as well.

While I do have to commend his cunning, I don't really know if this is the kind of situation you can fix within a reasonable time frame and budget.

Hi Robert,

I'm assuming he's offering a really fantastic price?  This would really scare me, honestly. Have you already gotten estimates on what it would take to get the place up to code?  My biggest concerns (beyond safety and liability) would be surprises down the road, when you need to fix or upgrade something and you find the the workmanship is shoddy and has to be completely re-done.  And as @Jeremy Pace mentions, zoning could be an issue - maybe you've already looked at that. I'm pretty risk-averse, so I'd need a really low purchase price, and I'd need to have enough reserves to do the major upgrades necessary, and possibly get rid of current tenants. Who pays all cash for rent?  Criminals?

Your renovation better include retrofitting the house back to a single family! Zoning regs and maps are usually available online. Look up the zoning and if it is single family (or even two family) only - you will need to return the house to a conforming state if you want to get a) a C/O or b) a mortgage at any point.


I would get in contact with an architect and/or a local city or county building inspector whichever hold jurisdiction in that locale off the record. I would also check with contractors to get cost to get it up to code.

Nothing really to do. He'll find someone who will buy it, unwisely, as a rental property. Someone with the mind set to do this is brushing off zoning legalities, and won't be selling for a price that would contemplate putting it back to a SFR.

That's the impression that we got, Wayne. He needs to ID a buyer who would run it like he has been.  That's not us. 

The house is zoned residential/commercial and he envisions it being run as a B&B. That concept might fly, as it's a solidly built Sears kit house from the 1920s and located in a historic area near Valley Forge. 

He's really painted himself into a corner. Too bad that he has absolutely no business sense or ethics. His improvements have made his house unsaleable, been on the MLS over 500 days. He's built his asset on a unsustainable base of tricky practices.

On the street where I live, it is a major street with mixed of sfr and apartments. All the sfr are R3 lots.  So the sfr are being bought and tore down for higher and better use apartments  If the building is up to code, building and safety may let it stand with some modifications.

Hard to say what to do with these kinds  of properties. They may worth saving if you can pick them up at a good price. There may not be a whole lot more to do than remove walls but if new bathrooms were added or new kitchens the problem could be too complicated and expensive to correct. 

Unless you know construction fairly well and know a drafstman or architect or even a structural engineer who can guide you I would simply stay away from it.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.