How do I address an Illegal unit?

[Nick Laverriere]

Hello BP community! I'm so excited to be making my first post on here!   I found a large 4 unit building in Portland ME, a fast moving market with very little inventory. I was impressed with the numbers on this building and was curious as to why it had been on the market for over a month.  I learned today that one of the 1 bedroom units is not legal due to lack of egress and the property has some management issues due to an absentee owner.   The asking price is $550,000 and would be purchased with a low money down FHA loan. The property will have positive CF of just under $800 a month taking into account one unit for owner occupied. My questions for the BP community are: 1. How do you suggest I deal with the illegal unit? Is this a deal breaker? 2. Will I be over-leveraging myself, making it difficult to acquire future deals with seller financing?

[Neal Collins]

Use the illegal unit as a negotiation piece because it legitimately is one. If the city finds out that you have an illegal unit then they will shut you down, so why compensate the owner for the value they are placing on it.

Could you explore coming off the price enough to cover the cost to make it a legal unit?