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How Illegal Additions Can Make You Higher Profits!

In  episode 100 Ryan talks about how Illegal Additions can be used to your advantage. When we evaluate a property, it is important to determine the full scope of work when rehabbing the property for retail sale or as a rental. Factoring in Illegal additions and the cost associated with them is crucial. If you are just wholesaling the property, then during the negotiations, you will be acting as both the buyer and then the seller. When negotiating with the seller, you will use the Illegal Additions to bring the price of the property down. Most Illegal additions actually cause more of an expense than they do adding value to the property. Then you will begin your negotiations with the buyer. They could make an argument for the fact that pulling permits could expose the illegal addition to the inspectors from the City or County.  However, most investors will not care about the illegal additions. One example is that of making the illegally enclosed Garage back into a Garage from a Bedroom. This is relatively inexpensive as it only requires some demolition and possibly putting on a new Garage door. Now if your buyer chooses to rent the property out and keep the bedroom in order to get a higher rent, for maybe section 8, then they dont have to worry about the inspectors. If they are not doing a major rehab they are most likely not going to be permitting any changes to the property. Broward County is known for properties with garages illegally enclosed into bedroom.  We see more properties with illegal structures In Dade County overall. These structures, that are not part of the original drawings, are usually referred to as the “in-laws quarters”. But again, if the property is going to be a rental it doesnt need to pass inspection unless it is going to be Section 8. Recently we bought a single family home in Hollywood that has been a  5 bedroom with 3 baths for the past 20 years. The garage was actually enclosed illegally to make the 5th bedroom. Part of the reason we got the property at a good price is due to the extra expense we told the seller it would be for us to get Architectural drawings and Engineering plans to make this 5th bedroom legal.  Because we dont need the extra bedroom, it was a simple decision.  Make the bedroom back into a garage! Illegal additions are something you want to look for in a property. It can be used to get you a better price from your seller, and in some cases a higher price from your buyer if the addition brings value like higher rental rates.