Legal 2 Flat with 3rd (Illegal) Attic Apartment

[Ryan Redenius]

I'm looking for a 3 flat in Chicago as my first investment property and recently came across a legal 2 flat with a 3rd illegal apartment in the attic.  Currently all 3 unites are occupied.

I know there are some risks with this as an investor but that it also goes on quite rampantly.  I'm not seriously considering this property right now but was curious if anyone had any experience or insight into renting out an illegal 3rd unit.  What sort of questions should I be asking?  

Thanks in advance!

[Matt Souza]

The short answer, do not rent out an illegal unit. You are opening yourself to countless legal risks, and will have virtually no recourse if that tenant ever has issues. For instance, how do you legally evict a tenant out of an illegal unit? They could potentially stay there forever.

Now if you want live in the illegal unit and rent out the other two, I have heard a lot if success with that. I have also heard of investors using that unit as laundry and storage for the other units, so you can still get some cash flow out of it.

The last option is to have a city inspector come in and rezone the building into 3 units. This can be a tedious process, however, and opens your property up to a slew of potential violations. Hope this helps!