HELP! Single Family 4 Bedroom - Only Permitted for 3 Bedroom

1 Reply

Help. First time investor here and have a question. I am looking at a 4 bedroom/2 bathroom house for sale. If I look at 4 bedroom rentals in the area the numbers work (rentals are approximately $1,250 for a 4 bedroom). However, the tax value is approximately 60% of the asking price and that threw up a red flag for me. After digging a little further, I found out that the house in only permitted for 3 bedrooms. The 3 bedroom rentals are approximately $800/month. That's $450/month less cash flow and the numbers don't work unless I get a very lowball offer accepted. Do you think I would be able to get a 4 bedroom rental price? Or will the permitting issue bite me?

My thoughts - make an offer based on the 4 bedrooms and put a contingency in the offer that seller must get the 4th bedroom permitted prior to closing. My guess is they will deny because they don't want to get it inspected at this point since the walls are closed up. 

Thoughts? Comments? Any help is greatly appreciated!

A few things to address here:

Don't get too caught up on the spread between the tax value and asking price.  There are plenty of resources available that cover this topic in greater detail so poke around BP if your looking to learn more.

You may also want to take a look at comps again.  I've never known a 4 bedroom home to rent for over 56% more a month than a 3 bedroom unless the quality and location are completely different.  I'd hate for you to proceed with a deal that "works" at $1,250/month when in actuality you may only bring in something like $950/month.

In regards to making it contingent that the seller get the 4th bedroom permitted, you won't know until you ask.  You could also submit multiple offers (i.e. if 4th bedroom is permitted my offer is $X and if not my offer is $X).  Base it around what works financially for both a 4 bedroom and a 3 bedroom.  Don't spend too much time wondering what they are going to do.  Simply put the ball in their court and be prepared to move on if they aren't interested in your proposals.

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.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here