Duplex with illegal attic

[Shuwei Wang]

We are under contract for a duplex 3/2 with illegal attic (that was previously being illegally rented out). For pricing wise we are waiting for appraisal to see if we can use our financial contingency to do some final negotiation. 

Now regarding the illegal attic unit (1 bed) what would you do if you were to purchase this property? 

Would you get permit to legalize this unit in this case? Here's my thought legalize attic unit

Pros: 

easier to rent out 1 bed room unit. Attic already built out. Higher rent.

Cons:

Need to add egress window, possibly stairs and sprinkler system to legalize. More $$$. Permit from city and can potentially take long time. 

Alternatively we are thinking open everything back up and connect upper unit with attic. That will make it a 4 bedroom 2 bath unit. (It will have 2 kitchen as well. we are thinking keeping the second kitchen in attic, not sure if that's weird). 

Pros: 

easier to do, no permit required, lower cost, and faster. 

Cons: 

rent will be lower, we are estimating $2200-2400 for 4 bed 2 baths vs $2600-2800 for separate out attic unit.

potentially harder to rent out? Although this is near college and popular area of the town, we may not have trouble renting out. 

We are redoing the appraisal as duplex and see what number it would be, but I think our decision of what to do with the attic unit will affect the calculation as well. We are not thinking owner occupy attic unit. It's just not big enough for both me and my husband. 

Also does anyone have experience negotiating using appraisal? My thoughts are lowering the price or walk away if seller refuse to. (If appraisal is lower). Any input is appreciated!