Rehab Permitting

25 Replies

Hi folks!

In my jurisdiction, and I'm sure it's common in most others as well, any rehab over $50,000 in cost requires permitting and a contractor's license if your are legal entity.  If you are filing as an individual, the individual can pull one such permit every 2 years if the intent is to occupy the property as a primary residence.  Now obviously I want do more than one rehab every 2 years, so my question is what method do you use to get around this hurdle?  I know not everyone out there has a contractor's license when doing rehabs.

Thanks,

Kevin

Hire a licensed contractor to do the job for you?

Can you become a licensed contractor?

I'd prefer to sub-contract everything myself; save lots of $ that way and I know it's commonly done...just not sure how people are doing it.  

Yes, I can become a licensed contractor and may do that...but then you have the expense of workman's comp insurance etc.

There must be a way the average rehabber is doing this without a license and without a licensed contractor; not everyone whose rehabbing has lots of construction background and the knowledge needed to take the contractor's licensing exam.

There must be a way the average rehabber is doing this without a license and without a licensed contractor; not everyone whose rehabbing has lots of construction background and the knowledge needed to take the contractor's licensing exam.

Why must there be some way to do rehabs without proper permitting and licensing?  Builders are licensed, get permits and do things properly.  Get a license and be the GC or hire a GC.  This is what you're signing up for when you become a rehabber.

I have no problem with permitting.  I'm just trying to find an answer, when I say "must" I'm recognizing that it's frequently done so there must be some legitimate way to accomplish that.  The jurisdictions would not be issuing permits to people without licenses unless there is some other legitimate way to accomplish permitting without a contractor's license.  In my state, the insurances required (workman's comp, etc.) to obtain a contractor's license is significantly higher than in most other states.  If an individual is a contractor as their primary occupation, they should have a contractor's license.  However I'm not sure the same is true if you are an investor who chooses to contract his own investment property.

Thanks for the comments.

Generally speaking,  you can't legally do illegal things.  Nobody here is going to be able to tell you foolproof ways to skirt the law -- both because they don't exist and because most people here prefer to do things legally. 

So, either do things the right way, or do what you want and hope not to get caught. You've been given several suggestions above for how to do things the right way. 

In other words, it's an issue of volume.  If an investor rehabs say 4 or more houses per year, then the financial analysis to support the cost of workman's comp and contractor GL makes sense.  However, at less than 4 / yr it doesn't make alot of sense...that's the dilemma.  All the seminars we attend talk about effective ways to rehab houses without using your own cash which is important to most people starting out in this business.  If a new investor doesn't have a cash reserve large enough to support the cost to obtain a contractor's license, there must be another way and I'm finding that the cost to hire a GC eats up a portion of the profit large enough that a reasonable margin is not being projected.

I can't answer your question directly because our rules are different. The only trades required to have licenses are electrical, mechanical and plumbing. I pull permits for our general repair rehabs and we do not have a contractor licenses. The licensed trades pull their permits under my permit. Your assumption that jurisdictions are the same is probably going to cause more confusion than answers. I would use BP to find other investors in LA and even better, in your town, PM them and ask how they are conducting business. 

I don't want to do it illegally guys, I'm asking if there is a legitimate way...apparently there is not that anyone is aware of.  

Why not call the building department directly, explain to them who you are and what you're trying to do, and ask them if there's some kind of legal work-around.

Katie, thank you!  That makes sense.  So it could be that my jurisdiction only requires the MEPs have licenses just like yours.  I'll look into that...thanks again!  Great answer.

I did contact the jurisdiction first.  It could be that the permitting requirement they explained to me was only required of the MEP contractors but not communicated as such.  Light bulb switched on!

I am not sure in your jurisdiction, but don't you need workers in order to buy worker's comp? If you only have you, yourself and I, then you don't need one. Since you stated above that you ant to subcontract everything, I don't see why you need one. If you choose not to buy commercial liability/umbrella policy, it is up to you also, its either $2,000/year or your house, car, bank, but the choice is yours. Be sure your subs have licenses and insurance. On my state, everyone's hands are tied.

Originally posted by @Manolo D. :

I am not sure in your jurisdiction, but don't you need workers in order to buy worker's comp? If you only have you, yourself and I, then you don't need one. Since you stated above that you ant to subcontract everything, I don't see why you need one. If you choose not to buy commercial liability/umbrella policy, it is up to you also, its either $2,000/year or your house, car, bank, but the choice is yours. Be sure your subs have licenses and insurance. On my state, everyone's hands are tied.

In some states, an owner can be covered under workers comp insurance. 

And then there is the CYA reason: in case some sub gets injured, but had coverage lapse for whatever reason. 

In Louisiana, if you are acting as a general contractor for your own personal home you do not need workman's comp. However, if you are acting as GC with the intent to sell or as GC for a private owner then you must have WC even if only on yourself.  I only employ sub-contractors that are insured.  

The answer to my original inquiry is that I only need my MEP contractors to pull permits so long as there are no structural framing alterations.  Non-structural framing needs no permitting; major structural does.

If you are getting into major flips that require structural changes, electrical and/or plumbing changes, I would HIGHLY recommend using a licensed contractor.  If you do this work yourself and the structure fails or the house burns down, you are opening yourself up to major litigation which will cost you ALOT more in the long run.  If you are only doing cosmetic flip (i.e. paint, carpet, cabinets and appliances), then you should be way under the cost requirement you specified and can do the cosmetic stuff yourself.  The whole reason for permitting in states is to protect future home buyers.  By acting as your GC, you had better have proper insurance to cover anyone hurt on your property, including sub contractors.  This is one off the good things about hiring a good GC and making sure they name you as a coinsured in case any sub gets hurt on your property.  Also, if you list the property for sale through a Realtor after rehab, it has been my experience that the buyers agent always asks for contractor invoices for the work performed to make sure it was up to standards.  Being able to produce them is a great selling point to support your asking priice.  Of course this is in AZ, so I can't say this happens in all states.

If you don't like paying the GC and are doing major rehabs, I would get the license.  Insurance is irrelevant as you should have it anyway to protect yourself unless you are covered by the GC insurance.

Just my two cents as a rehabber myself.

Originally posted by @Steve Babiak :
Originally posted by @Manolo D.:

I am not sure in your jurisdiction, but don't you need workers in order to buy worker's comp? If you only have you, yourself and I, then you don't need one. Since you stated above that you ant to subcontract everything, I don't see why you need one. If you choose not to buy commercial liability/umbrella policy, it is up to you also, its either $2,000/year or your house, car, bank, but the choice is yours. Be sure your subs have licenses and insurance. On my state, everyone's hands are tied.

In some states, an owner can be covered under workers comp insurance. 

And then there is the CYA reason: in case some sub gets injured, but had coverage lapse for whatever reason. 

 I am not sure why you would be liable or your work comp would cover employees of other companies, I usually have a waiver of subrogation with my company as additionally insured, so if my sub's employees get injured, regardless of who's fault it is, it's their cargo. And why wouldn't you get an ACORD cert of insurance for every project?

To the original poster, can't your carpentry sub pull the permit in the event of structural replacements? But anyway, WC is cheap if you declare it right, they have absolutely no exposure since you are 100% subbing, but they will underwrite you on your contracting practices and quote you with those parameters. They'll question your safety practices and how you protect yourself against your subs, etc.

Just a follow up.  Remember it is better to work ON your business and not IN your business.  Buy houses at a larger discount to accommodate using the higher priced GC on major rehabs.  Let the GC do the work and manage the subs while you look for the next deal. Which do you think is the better use of your time? ;-)

Originally posted by @Kevin Stablier :
Non-structural framing needs no permitting; major structural does.

 What about minor structural?  ;-)

Originally posted by @Kevin Stablier :

Hi folks!

In my jurisdiction, and I'm sure it's common in most others as well, any rehab over $50,000 in cost requires permitting and a contractor's license if your are legal entity.  If you are filing as an individual, the individual can pull one such permit every 2 years if the intent is to occupy the property as a primary residence.  Now obviously I want do more than one rehab every 2 years, so my question is what method do you use to get around this hurdle?  I know not everyone out there has a contractor's license when doing rehabs.

Thanks,

Kevin

Hello!  You have to know and follow all the laws.that should be a part of your due diligence.  Just know all of your market and you will do better.  Whether they are good or not you have to know everything that is required. 

Originally posted by @Kevin Stablier :

I have no problem with permitting.  I'm just trying to find an answer, when I say "must" I'm recognizing that it's frequently done so there must be some legitimate way to accomplish that.  The jurisdictions would not be issuing permits to people without licenses unless there is some other legitimate way to accomplish permitting without a contractor's license.  In my state, the insurances required (workman's comp, etc.) to obtain a contractor's license is significantly higher than in most other states.  If an individual is a contractor as their primary occupation, they should have a contractor's license.  However I'm not sure the same is true if you are an investor who chooses to contract his own investment property.

Thanks for the comments.

 Just because something is "frequently done" does not make it right.  It does sound as if you are looking for ways to circumvent laws and proper procedures and that is no way to run a business.  If you can not afford to run a proper business then don't be in business.

There are always going to be pesky little things that affect your profit: taxes, insurance, building codes, disclosure statement, etc. Will you look for ways to cheat on them as well?  If not, why not?

Originally posted by @Kevin Stablier :

Hi folks!

In my jurisdiction, and I'm sure it's common in most others as well, any rehab over $50,000 in cost requires permitting and a contractor's license if your are legal entity.  If you are filing as an individual, the individual can pull one such permit every 2 years if the intent is to occupy the property as a primary residence.  Now obviously I want do more than one rehab every 2 years, so my question is what method do you use to get around this hurdle?  I know not everyone out there has a contractor's license when doing rehabs.

Thanks,

Kevin

 Hello!  You are suppose to follow the law regardless if others do not. That shoul be a part of your Due Diligence plan. Probably nothing you can do short of changing the law through that City's Council.  You just have to follow the laws, no matter how rediculous it seems.  I am 59 years old and have been in the construction business since I was 17. I have a college graduation in business with an emphasis in real estate,  I graduted and go my baker license in 1980.  I found BP about 3 months ago and I am still learning.  If you think  I might be any help for you do not hesitate to contact me at any time.  Hopefully I will learn how to get around in BP.  Good luck to you!

Art -

I'm not trying to circumvent any laws.  Please read the entire thread before making such accusations.  Through a helpful, non-assuming comment from a subscriber named Katie followed by my own research I discovered the answer to my question back in June.  There is a legitimate way to rehab without a contractor's license.  The answer is having the MEP trades pull the permits for their portion of the work.  The investor only needs a license for structural alterations in which case he can higher a licensed framing contractor for that.  

In any case, I've had a commercial contractor's license since 2009.  However a few months ago there were some hurdles to getting my residential license that I couldn't overcome at the time.  I've since overcome that obstacle and now have my residential license as well.  I'm also fully insured, fully and professionally operational, and I currently have 4 new residential properties under construction thanks to my persistence in procuring a million dollar investment from a funding partner.

Moral of the story : when you start from little of nothing you have to dig deep to find answers and/or avenues for overcoming whatever situation you find yourself in.  Creating a life by design and not by default requires resilience and ingenuity.  I am now well on my way to the success I was intended to achieve.  If you're already there and are truly interested in helping folks who haven't made it yet, try not to be so judgmental in your approach.  Telling people they shouldn't be in business if they can't afford it is the opposite of what I thought this site is about.  If you want to help folks become successful, then share your experience...but don't discourage people because you can't relate to their struggles and circumstances they've encountered.  It's more helpful to just remain silent.

Originally posted by @Kevin Stablier :

Hi folks!

In my jurisdiction, and I'm sure it's common in most others as well, any rehab over $50,000 in cost requires permitting and a contractor's license if your are legal entity.  If you are filing as an individual, the individual can pull one such permit every 2 years if the intent is to occupy the property as a primary residence.  Now obviously I want do more than one rehab every 2 years, so my question is what method do you use to get around this hurdle?  I know not everyone out there has a contractor's license when doing rehabs.

Thanks,

Kevin

 Always permit no questions ask. Do you want to build a bad reputation with your local planning departments? When you get bigger, it will hurt you.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.