Illegally renting main house and living in another house built on back of the house on same plot...

 I am buying a property in CA. This has total 7500 sq.ft. plot. About
4500 sq.ft. plot is availabe behind main house. I want to construct
another house on the plot, behind main house. Legally I will treat it
as in-laws apartments (I will take legal permit for the construction).
Once it is build I will move it the new house and rent the main house.
Rent received is illegal and not disclosed IRS. So I am not paying any
tax on rental income.

1. Do you think that this plan has hay loop holes, problems?
2. Has anyone done this? Do many people do this?
3. Any tips on negotiating mortgage for buying and construction?
4. What would you do if you have 4500 sq.ft of plot available behind
your main house?

-Kaushik

  When you say rent received is illegal - do you mean it's not legal to rent
this property for some reason, or that you are planning to hide your rental
income to avoid paying taxes? If the latter, you should be aware that rental
properties can be a trememdous tax shelter. There's probably not much
incentive to hide the income. You can write off all sorts of things related
to the upkeep of the property and depreciation.

 

Yes...the part about not telling the IRS.  That can put you in the
big house under the worst case scenario.  Never screw with them
guys.  Even if this is not a legal rental, the probability of the
local government ever doing anything about it is small.

Second, why not make it a legal rental?  In most places, all you
have to do is get it inspected and have a rental license issued.
Also, check the zoning.  But if this is zoned for single family
houses, a single family rental should not be a problem.

-john-

--
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John A. Weeks III            952-432-2708         john@johnweeks.com
Newave Communications                       http://www.johnweeks.com
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 Kaushik wrote:

Let's see, oh yeah, the whole ILLEGAL part.


I'm sure people have done this.  Some probably get away with it, some not.


Make sure the lenders know all about the illegal part otherwise you can
get in trouble.


4500 square feet is pretty small.  I'd put a garden in it.
--

-Bill

 Bill Seurer wrote:

+ neighbors. And is there a homeowners association?


we have about twice that, probably more. Plant some fruit trees,
vegetables and some lawn.

I couldn't possibly stand the noise of having people that close by
in more directions than we have already. 4500sf is 67 ft square.
if you put a 1000 sf house on that you have 18 feet clearance
- assuming the house is square.

Maren