How to execute a fixer upper deal with illegal units/construction

[Robin J.]

Hi all,

I'm a new investor to the fixer-upper game, but generally have been interested in buy and hold strategies. I've found a run-down property I like where I'd like to live in an ADU and rent out the house long-term. Couple questions I'd love to get BP's input on:

1. When looking at properties with illegal units/construction, what's the best way to approach the execution process? I've listed my high level outline below, and welcome any feedback.
   • 1 - obtain all building permits for the property - understand what's legal and what's not
   • 2 - talk to the city development person to see whether I can legalize the current illegal units and bring it to code, or if I'll have to remove it
   • 3 - after understanding what needs to be done with the property, talk to a home inspector to identify which units are in compliance and what's not (also get all the standard inspection items)
   • 4 - work with a general contractor to get a $ quote for necessary jobs on the property
   • 5 - bake those numbers into analysis to determine whether to buy
   • 6 - discuss property details with lender and get an appraiser's input
   • 7 - submit offer after passing all criterias
2. As a first time home buyer, what else have I missed? This feels like more of an advanced deal to take on, but I view this as a good learning experience, whether or not I actually go through with it.
   • Any advice on how to structure the offer (e.g. contingencies)?
   • How to make sure I fully understand potential financing options? Given that bank lenders will only lend for the appraised sq. footage, should I negotiate the price down with the seller to account for this?

Also, for local investors, do you guys have any recommendations for contractors, architects, and inspectors out here in San Francisco / Peninsula? I've largely been looking through Yelp, but any input here would be super helpful!

Thanks all in advance.