I'm looking at a multifamily 4 unit with a "bonus" basement unit in Illinois. Cash flow wise, it only really makes sense to do the deal with that bonus units cashflow contribution. • Are there issues that could come up with the closing? • Are there issues that could come up down the road? I.E. if I needed to renovate? • Should I underwrite this as a strict 4 unit, and call the 5th the icing on the cake?

I just recently dealt with this scenario on a recent purchase. 4-plex with an illegal 5th unit at the bottom of the building. Things to watch out for: 1. Appraisal - make sure that the 5th unit does not display as a unit. Pull out the stove and maybe the fridge. Technically, the fifth unit on the place I was buying was a storage area. 2. I would underwrite it as a 4-plex and if you choose to rent out the fifth unit that’s icing on the cake. 3. Renting out the fifth unit is a risk (one that many owners take quiet often but don’t think about the implications). You are exposing yourself to a tenant that could report you to the city, if there is an injury in the fifth unit you have exposure, and if the lender found out it could be an issue. Again, still might be worth it to rent it out, but be aware and try to mitigate the risk.

Hey @Ori Skloot thanks for the insights. So many people are all about "bonus" units, but it really seems like a lot of risk. I will definitely keep it in mind

Followed Discussions Followed Categories Followed People Followed Locations

General Landlording & Rental Properties

Market News & Data

Market Trends & Data

Buying & Selling Real Estate

Out of State Investing

Real Estate News & Current Events

Real Estate Technology

Investor Mindset

General Info

BiggerPockets Exclusive PRO Area

PRO

General Real Estate Investing

BPCON

New Member Introductions

Questions About BiggerPockets & Official Site Announcements

Off Topic

Starting Out

Real Estate Success Stories

Real Estate Horror Stories

Real Estate Strategies

House Hacking

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

Commercial Real Estate Investing

Mobile Home Park Investing

Innovative Strategies

Multi-Family and Apartment Investing

Land & New Construction

Wholesaling

Rehabbing & House Flipping

Short-Term & Vacation Rental Discussions presented by

Tax Liens & Mortgage Notes

Medium-Term Rentals

Buying & Selling Small Businesses

Outdoor Hospitality

Landlording & Rental Properties

General Landlording & Rental Properties

Managing Your Property

Marketing Your Property

Tenant Screening

First-Time Home Buyer

Real Estate Professionals

Mortgage Brokers & Lenders

Contractors

Real Estate Agent

Financial, Tax, & Legal

Creative Real Estate Financing presented by

Personal Finance

Insurance

Private Lending & Conventional Mortgage Advice

Tax, SDIRAs & Cost Segregation presented by

Foreclosures

1031 Exchanges presented by

Goals, Business Plans & Entities

Legal & Legislation

Real Estate Classifieds

Classifieds

Real Estate Events & Meetups

Reviews & Feedback

Ask About A Real Estate Company

Real Estate Deal Analysis & Advice

Guru, Book, & Course Reviews

Syndications & Passive Real Estate Investing

Updated over 4 years ago on 11/02/2020. Most recent reply

88
Posts: 22
Votes

Ben StaplesPoster

Investor
Chicago IL

General Landlording & Rental Properties

What issues can be caused by a bonus unit?

Ben StaplesPoster

Investor
Chicago IL

Posted November 01, 2020 14:04

I'm looking at a multifamily 4 unit with a "bonus" basement unit in Illinois. Cash flow wise, it only really makes sense to do the deal with that bonus units cashflow contribution.

Are there issues that could come up with the closing?
Are there issues that could come up down the road? I.E. if I needed to renovate?
Should I underwrite this as a strict 4 unit, and call the 5th the icing on the cake?

0 Votes

2 Replies

Jump to Last Reply

Sort By:

Oldest

Loading replies...

Struggling to find reliable real estate advice?

Join over 3 million real estate investors to build connections, learn from others, and share your journey — all for free!

Your Profile Views

Curious to see who's interested in your profile? Unlock your views with Pro

Connect with others

7 day free trial. Cancel anytime.

PRO

Upgrade to Pro

Market Finder - key investor metrics for all US markets

Deal Finder - investor-focused filters and notifications for new properties

Calculators - Unlimited access to 9+ property analysis calculators

Find an Agent

Find & Match With an Investment Friendly Real Estate Agent

Enter your market to get started

Rent Estimator

Address or ZIP