I recently had a showing of a legal 2 family house, soon learning that the basement unit was rented out illegally. My question is, what incentive did the previous owner have in not making it a legal 3 family house other than collecting rent off the books? It has its own separate entrance, bathroom, and kitchen (minus a stove). Also, what should I be weary about should I move forward with this deal and handling the 3rd unit? As the owner, am I legally allowed to live in this third unit not collecting rent?
Appreciate all info and thank you BiggerPockets family!
@Christian Mano :
This stuff gets really really tricky.It depends on the county, city, your neighbors, tenants, you etc. A lot of issues can happen with the illegal rentals. For example: when you get an insurance, you have to make sure that they have accounted for this. God forbids, if somethign happens and there is a fire, they insurance company can deny all the claims if they find out that someone was living in the basement.
Other issue is with the county, there are local laws on this stuff, some counties are more forgiving than others but if the tenants complain or the neighbors complain because you had an issue with them, you can get into trouble.
Right way to do is by getting a C of O. However, it can get expensive as your taxes will potentially go up, you will have to pay for applying the CO and it may take a long time to get it done.
Having said all of this, is it done? All day and everyday. Especially in NY. I see so many people doing this.
Thanks for the response! I've been reading insurance is the main issue with having a unit like this, as they can void all coverage. My only options would be to 1) keep the basement strictly as storage or 2) go through the process of getting a CO and deal with the potential tax increase on an already high tax property. The property is still at 6.5% cap so I have a lot to consider... Thanks again for the info!
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