Investors are always on the lookout for creative ways to maximize profits and cash flow. With the right improvements every house has the potential to make money. Cutting corners and doing unpermitted improvements can cause a lot of trouble for investors.
In their quest for properties investors sometimes acquire properties with illegal improvements. On the other hand, there are some investors who decide to get creative and make unpermitted addition to the home. In both cases this can result in serious complications and expensive issues that are extremely counterproductive.
Buying homes with unpermitted work can cause some issues for the investor which include:
1. Trouble getting Financing
Sometimes finance can be difficult to obtain if there have been unpermitted improvements on the home. With the clock ticking to close the contract the Investors can have some financial loss from the extended time taken or even possible loss of the property if they are unable to close due to lack of funding.
2. Fines & Penalties
Once you own the property you are responsible for taking on the financial woes of the house. It will be up to you to pay all the fine and penalties and bring the house to code. In some municipalities, the fine can be as high as $1,000 a day; which, results in fines totaling tens of thousands of dollars. These huge fines are sometimes not manageable and result in foreclosure of the property.
3. dead weight
These homes many times are unsaleable, and the investor may have trouble getting rid of the property due to no one else being able to obtain financing or title insurance.
4. Reputation
It’s important to consider one’s business ethics. A San Diego County real estate investing firm quickly learned that trying to cut corner and renovate homes illegally cost them their reputation. The whole communities petitioning against them from being able to buy, build or renovate homes due to the community finding out they added illegal rental units to properties to boost cash flow.