As the real estate market improves and investing heats up, investors are increasingly looking for creative ways to maximize profits and cash flow. Subsequently, they are scooping up homes they may not have 3 years ago. Every house has the potential to make money with the right improvements. However, unpermitted improvements can result in a lot of trouble for investors.
Sometimes this involves acquiring properties with illegal improvements. In other cases, some investors are getting too creative and are making unpermitted additions to homes. Both scenarios can result in serious complications and expensive issues that are extremely counterproductive.
Unless those involved with real estate investing are careful not to buy homes with unpermitted work, they could quickly find themselves running into a variety of threats including:
1. Blocked From Financing
If you are in contract to buy a home with money in escrow, unpermitted improvements can prevent financing from being obtained, reducing liquidity and causing financial loss.
2. Fines & Penalties
Whether you were the owner at the time illegal work was done or not; it’s now on you. That means code violations, fines and penalties. In some municipalities, this has resulted in $1,000 a day fines totaling tens of thousands of dollars. This can even force some into foreclosure.
3. Not Being Able To Sell
Once owned, these properties can also essentially become dead weight and unsalable due to the next round of potential buyers being unable to obtain financing or title insurance on them.
As many real estate investing firms have found out the hard way, actively engaging in these activities can trash reputation and lead to whole communities petitioning against them being able to buy, build or renovate homes. Follow the county building department rules in your area and avoid costly mistakes that can be easily avoided.