Whether an unpermitted garage conversion can count under the ADU income rule

A nephew paying 900 with no lease isn't a tenant, it's a family arrangement. Even if the appraiser writes a market rent number, the safer assumption is re-renting that unit from day one.

Someone who does trade work is going to have to open a wall. A 2019 conversion with no permit means no inspection on the electrical feed to the garage, no inspection on whether that kitchenette drain tied into the main line correctly, and no idea what the insulation situation is. I've seen conversions done well by people who just didn't want to pull the permit and I've seen a subpanel fed by an extension cord run through conduit. Get someone in there Friday with the inspector.

Walk. A dead permit trail, a fake tenant, and a lender who won't commit in writing. Any one of those is a Tuesday. All three at once on a deal where qualifying income doesn't work without the second unit is how buyers end up in trouble.

Genuinely asking, can you get the conversion permitted after the fact? Or is that a thing that only works sometimes?

@nataliehsu it depends entirely on the jurisdiction. Some cities have a retroactive permitting or legalization path for existing conversions, others will make you bring the whole structure to current code, and a few will just tell you to remove the kitchen. Whether it's available and what it costs varies by city and state, so it's a call to the planning counter with the parcel number.

The number I want from you is what the deal looks like with zero income from the studio. Not what it looks like on the qualification form. If you can't hold the payment for six months with that space empty, the underwriting question is academic.

@aliyah_b is asking the right thing but it's harsher than that. Vellum said his income supports 60 percent of the payment. That's not a six month gap, that's a permanent one. This property only functions with the studio rented, forever.

On the exit cap point, that worry is fair but worth sizing. If a future buyer's lender won't count the income, the buyer pool narrows to cash, investors, and people who qualify on the house alone. In a market where the ranch alone appraises fine, that pool is still large. That's a discount on exit, not a lost exit.

Dumb question I want answered anyway. If the appraiser walks in and sees a studio with a kitchen, do they have to report it? Like is the appraisal itself the thing that tells the county it exists?

@jessreyes12 the appraisal goes to the lender, not to the assessor. But appraisers generally do note whether a second unit appears legal, legal nonconforming, or illegal, and an underwriter reading "illegal accessory unit" tends to react. It doesn't trigger a county inspection by itself. That's usually a neighbor complaint or a permit pulled later on something unrelated.

Ask your loan officer to put the answer in writing before Friday. Not a call, an email. "Will underwriting count projected rent from an unpermitted accessory unit toward qualifying income on this file, yes or no." If she won't write it down, you have your answer and you saved the inspection fee.

Worth asking what the studio adds to the appraised value at all if it isn't a legal unit. If it appraises as a garage with a hobby room, the price paid is really for the 1,480 square foot ranch alone.

@chriswalton8 that is the one. Pull three comps of plain 1,480 square foot ranches in that neighborhood, no second space. If they are closing at 340, the seller is charging 49k for an unpermitted conversion that cannot be documented. Then get a contractor number on what it costs to bring it to a permitted state and see whether those two numbers are even in the same universe. A reasonable range is 20 to 45k depending on what the electrical looks like and whether the jurisdiction requires a foundation or firewall upgrade.

Unpermitted conversions almost always cost more than the estimate, because scope behind drywall cannot be known until it is opened. If you keep going, negotiate the price down against a range rather than a point estimate, and get an escrow holdback if the seller will not move.

A Friday deadline with four unknowns calls for extending the inspection period by a week if the seller will grant it, then spending that week on two phone calls, the planning counter and a written answer from the lender. If the seller will not extend on a house with a nephew living in the garage, that tells you something too.