Rented illegal unit in Chicago advice

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Rented illegal unit in Chicago advice

Jia LiuPro Member
New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes

Hello guys,

My friend has a house in Chicago. She bought a single-family home with an additional unit in the basement that is not an official/permitted unit.

The house was already rented to Section 8 tenants (both units) when she bought the property, and it went through yearly city CHA inspections. Given the strict requirements of the city for the safety of the property, she assume the extra unit is built up to code, but she never checked it with the city engineer. Of course, I told her she made a mistake buying the property like that. Now she wants to make it right.

If she starts the legal conversion process with the city while the tenant is still there, I can imagine it would be quite a painful process, because the city would force her to evict the tenant immediately and the tenant could complain and file a lawsuit. It would be better if she moves the tenant out without breaking any lease agreement first.

Do you know some reliable engineer who she can contact and make sure the building is up to code before actually starting the legal conversion process? Of course, this solution would be only temporary. She would start the conversion process after the tenant is moved out.

In case something happens to the tenant while being inside the unit, will the insurance cover the costs if the unit is at least up to code, though not legal?

Will making sure the unit is up to code assure that if something happens to the tenant, she won’t be facing serious legal issues?

She wants to sell the property again but buyers are scared to buy an illegal unit, for valid reasons.

If anyone can suggest how to best proceed in this situation, let me know. I myself don’t have any experience with this.

Thanks in advance for your help.

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Mark AinleyBusiness Member
Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
4y

@Jia Lin You have a tough scenario here but the person you need to talk to first is an architect.  You are going to have to talk to either @Prashanth Mahakali & @Samuel Pavlovcik and have them advise you on next steps.  This is a long process and there is a chance it wont make sense to go through but either way if work is required you would want to move the resident out.  Talking to an architect and giving them the address can pretty quickly reveal your options!  

Good luck for your "friend".  LOL JK horrible scenario but willing to help anyway I can.  We did podcast episodes with both of these guys so I will DM that to you here shortly.

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  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    4y

    @Jia Lin You have a tough scenario here but the person you need to talk to first is an architect.  You are going to have to talk to either @Prashanth Mahakali & @Samuel Pavlovcik and have them advise you on next steps.  This is a long process and there is a chance it wont make sense to go through but either way if work is required you would want to move the resident out.  Talking to an architect and giving them the address can pretty quickly reveal your options!  

    Good luck for your "friend".  LOL JK horrible scenario but willing to help anyway I can.  We did podcast episodes with both of these guys so I will DM that to you here shortly.

    [email protected]630-781-6744Podcast Guest on Show #72
    GC Realty & Development LLC4.61061 Reviews
    WebsiteView Page
    5Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    4y

    @Jia Liu these types of situations are very normal in Chicago as there are thousands of "garden" units here. I doubt your friend will have the time to convert this unit legally, and it sounds unlikely that it would be worth it since she wants to sell. Why not convert back to single family and move on? The process to convert back to a traditional single family would probably be fairly simple in that you don't need to do anything other than start following the codes. Once the tenant is out, make the place live like a single family! Remove the second kitchen (at least the stove) and make the basement feel like a nice finished basement. 

    3Reply
  • Jia LiuPro Member
    OP
    New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes
    4y

    @Mark Ainley Thanks a lot for your advice. I will share it with her.

    0Reply
  • Jia LiuPro Member
    OP
    New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes
    4y

    @John Warren Thanks a lot for your input. Making it a single-family instead makes a lot of sense and it sounds way easier. She would like to sell it as soon as possible. I wonder if there are buyers that would buy it under this circumstance or whether she was the only one :). 

    0Reply
  • Account Closed
    Property Manager · Boston, MA · Member since 2014 · 194 posts · 73 votes
    4y

    I’m sure the property has appreciated by now. Put it back on the market and sell. Other wise she’s going to eat up the cost. If it was approved by section 8. She should be all set and enjoy the cash flow from steady section 8 income. At this point no reason to fear. 
    hope that helps

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  • Account Closed
    Property Manager · Boston, MA · Member since 2014 · 194 posts · 73 votes
    4y

    I’m sure the property has appreciated by now. Put it back on the market and sell. Other wise she’s going to eat up the cost. If it was approved by section 8. She should be all set and enjoy the cash flow from steady section 8 income. At this point no reason to fear. 
    hope that helps

    0Reply
  • Samuel Pavlovcik
    Architect · Chicago, IL · Member since 2020 · 214 posts · 236 votes
    4y

    @Jia Liu the previouslt mentioned comments and recommendations by @Mark Ainley and @John Warren are definitely valid. These situations do happen quite frequently in the City of Chicago, but unfortunately you can be pretty limited on options. Depending on the Zoning Designation for the lot; it is likely that it would only be permitted for Single-Family use. That being said, the only way to "Legalize" the basement unit would be to pursue a Zoning Variation; or if it happens to be located within one if the new ADU Pilot Areas, that could provide an opportunity as well. Additionally, whether you decide to pursue making this a legal unit, or part of a "Finished basement" for the residence; since the work was previously done without a building permit, the City can make you expose all plumbing/electrical/mechanical work to ensure it is up to code; or they can even make you rip everything out and start from scratch! Regardless, you will need to obtain a building permit, use Licensed contractors, and some work will need to be done to the basement, in addition to just removing the stove... There are other concerns as well which could arise as "Big ticket items" like the Electrical service/panel, ceiling height concerns, natural light and ventilation requirements, etc. so a more detailed review would definitely be necessary to provide more clarity as to what the best options may be to move forward.

    5Reply
    • Account Closed
      Member since 2025 · 15 posts · 3 votes
      1y

      @Samuel Pavlovcik is there a difference if you buy a unit that already had the unit built out ( the previous owner did it) vs you converting an unfinished basement into a unit. In the eyes of yhe city, do they see them the same?  Is there some type of grandfathering option? 

      0Reply
  • Jia LiuPro Member
    OP
    New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes
    4y

    @Samuel Pavlovcik that makes sense indeed! She said she is contacting you now and will discuss everything. @Account Closed Yes, very stable income, but a ticking bomb. The buyer will have to be enjoying the risk.

    0Reply
  • Brennan Crick
    Realtor · Chicago, IL · Member since 2017 · 42 posts · 20 votes
    4y

    @Jia Liu yes this is very common in the city. I work with investor buyers all the time and most multi unit have a nonconforming rented basement unit that they can invest into. An another option for this situation is to sell “as is”and disclose that the garden unit is non conforming. The sale price would have to be comparable to only the similar properties minus the basement unit. Let the next investor take the work load in converting it or making it legal. The seller would have to take a Invester buyer that offers cash , hard money or conventional loan options. This would be the easiest way.

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    Illegal units are very common in Chicago and can go on for decades with no issues. The unit may not even be legalizable due to zoning, etc. Even if legalizable it is a long expensive process and definitely not something you can do with a tenant. Check ADU area to see if in the correct zone as that will be easiest process but I would just keep renting it and not notify the city. Most of my house hack clients actually ask me to help find buildings with an extra unit as it increases the cashflow so much/allows you to live nearly free in a unit.

    4Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    4y

    @Jia Liu - Where exactly in Chicago is the property located? If it is located in one of the pilot ADU zones that may make things a little bit easier, but having to change the number of units may not be worth it. Did your friend get a zoning certificate when the property was purchased to confirm the number of units?

    If it's not in an ADU area, I would probably not try to change the number of units it will end up being a way bigger headache than it's worth. It's totally normal in Chicago to have illegal non-conforming units. If your friend is worried about the risk, have them take out an extra umbrella policy through their insurance.

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  • Jia LiuPro Member
    OP
    New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes
    4y

    @Jonathan Klemm Zoning certificate does say 1 unit. Her house is not located in ADU area. Apparently, years back, the owner tried to legalize it as 2 units. it was approved by the city, but under conditions to bring the building up to code and with all the permits. The owner never pulled any permits so it stayed 1 unit until now.

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y

    @Jia Liu These are super common in Chicago and the word "illegal unit" makes it sound scarier than is necessary. My family owns a single-family home on the northside with a garden unit they have been renting out since the 80's - we've never had a problem. The city is not coming after these units, in fact, they are actually trying to promote them with the new ADU policy that is currently moving through city hall. As a real estate agent, I actually pitch these types of homes to some of my multi-family clients, as it is sometimes the case that you can pay a 2 flat price for a home that has three rentable units. So long as you are upfront about the legality of the unit and do not try to market the property as a 2 flat you should be fine.

    2Reply
  • Robert Andersen
    Member since 2020 · 20 posts · 7 votes
    4y

    If you drive down any block on the north side of Chicago you're going to see two flats that all have illegal non conforming basements. Don't let the above posters scare you.

    legalizing the basement would generally mean underpinning which is extremely expensive.

    Keep renting it or sell and list it as a non conforming basement unit. This will increase the sale price. Plenty of investors out there are interested in these.

    0Reply
  • Jia LiuPro Member
    OP
    New to Real Estate · Orlando, FL · Member since 2017 · 59 posts · 11 votes
    4y

     @Robert Andersen Thanks a lot for your insight. She is feeling a bit better after consulting with multiple people.  Thanks a lot everyone for your advice!

    0Reply
  • Madeline Walsh
    Member since 2023 · 7 posts · 10 votes
    3y

    I am interested in a property that has an "illegal garden unit." My lawyer says that there is some liability involved because if the tenant finds out it is illegal, you can owe them damages. Chances are, most tenants will not know this information.

    0Reply
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