Are any of your rental units built without a permit? Is there an additional “bootleg” unit on your property?

I once saw a property in Bellflower that had been foreclosed on by the bank. From the street it looked like a single family home, but behind the tall fence were an additional six rental units.

I am not sure of the exact circumstances of the lender acquiring that property, but I can say that if the units had been legal, it would probably have had enough equity to refinance and probably have saved the owner from foreclosure. There are a number of problems with illegal structures.

LIABILITY If one of your tenants is injured on the property, the insurance company may not support your claim. You could lose your property (and other assets you may have) and possibly even face criminal prosecution for illegal activity.

CODE ENFORCEMENT It is not a matter of “if” but more a matter of “when” CODE ENFORCEMENT finds out about your property conversion. If there is a development next door or down the street they may just walk by and notice something, leading to an inspection. I sold a 4 unit building in Long Beach which was bank owned, The building consisted of (4) good sized one bedroom units and a small commercial store. The owner was attempting to reconfigure the one bedroom units into two bedroom units. This would have been a common change and most likely could have been permitted. This owner, however, chose to do the work illegally. Unfortunately for that owner, the property was a few blocks from City Hall and on the route most inspectors took to get back to the office. The owner lost the building to the bank and my client, a general contractor, purchased it and made it into (1) 4 bedroom unit, ((2) 3 bedroom units and an additional 2 bedroom unit, from the small store.

VALUE When you refinance or sell, an appraiser will add no additional value for illegal or bootleg units. It could even cause a lender to reject your loan application altogether. Your costs of labor and materials will be the same with or without permits, but you will create no real value.

SB 9 and SB 10 With these new laws allowing for ADU’s (Accessory Dwelling units) the process is much easier than it was in the past. You can increase rental income and create value without the risk of building illegally. If you have an existing bootleg unit, check with your contractor about getting it permitted as an ADU. There will be a lot to go through, but it will likely be much less than starting over. If you have an existing bootleg, you should also talk to your real estate attorney about your potential risks and how best to protect yourself.

What we at PRS PROPERTIES CAN do for you, is to check to make sure all of your units are permitted and recommend building professionals if needed. We can also look at your building for other changes that might allow you to get a higher value in order to create value for your investment. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We have many investors who are looking for “as-is” properties and are willing to purchase even with bootleg unit in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45 day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.