"Pulling a permit" during rehabs

21 Replies

Hello BP flippers & Company,

Recently I was advised to hire contractors that can "pull a permit." What does that mean? Please share.

Kind Regards

Much of the work you might do during a fix and flip requires building permits, issued by the controlling locale's building department.   Usually city, sometimes county.  "Pulling the permit" is the process of applying for and getting a permit.  Usually this requires a licensed person to get the permit.  Exactly what license depends on the work being done.  For example, a licensed HAVC contractor could pull permits for replacing the furnace, but not for replacing the roof.  Doing a major remodel usually requires someone with a general contractors license, and then the use of licensed subcontractors for specific work like plumbing, electrical or HVAC.  Details vary widely.  The details tend to be more complex and onerous on the east coast than elsewhere.  Best approach is to contact the city, discuss what you're doing, and see if any permits are needed.  Paint, carpets, and the like usually don't require permits.  More significant changes do.

Its tempting to skip this.  Don't.  I did a loan once to a rehabber who got permits for some, but not all, of the work they were doing.  They got caught doing unpermitted work when having inspections for the permitted work.  Turned out the city in question had a program to try to catch unpermitted fix and flip work and they would have been caught even with no permits.  They ended up giving back the property deed-in-lieu because they were unable to fund the additional work the city demanded.  We ended up having to dig up parts of a finished basement, take down cabinets, and open up walls to allow the city to inspect things.  This deal ended up being a small loss to my partner and I, a few thousand.  A much bigger loss for the rehabber.

@Kristen Ray Certain permits are required to be pulled from the city in order to do certain work.

If you are doing work to plumbing you will likely need to have a permit pulled and then have it inspected.

If you are doing work to electric you will likely need the same.

Cosmetic work such as painting, refinishing hardwood, etc. do not need a permit.

Permits cost money from the city but they ensure that everything is done correctly and up to code. I would highly suggest talking to your City Hall Inspection Department for more information on what requires a permit and what does not.

Hope this helps!

@Kristen Ray permits are necessary from the city in order to prove the work being done is done right. The permit itself is authorization from the city to do the work. If you don't pull one, and the city finds out, you could be fined a good chunk of change. Additionally, they may require you to redo the work. For instance, if you're doing a replumb of a bathroom, you'll need to get a licensed plumber to pull the permit from the city. The city inspector will then come out and do a pre-inspection of the work. The plumber will "rough-in" the plumbing pipes and valves and the inspector will come out and do a "rough-in" inspection. Then the plumber will finish up and the inspector will come out again and do a final inspection. The inspector is making sure all the work is "up to code". Please note that in order to pull permits, the specific contractors must be LICENSED. This is why certain contractors may be more expensive than others: they're putting they're butts on the line with the city. 

This will be the same process for things like structural, electrical, roofing, etc. If you're doing cosmetic things like painting or tiling a floor, a permit won't be necessary. 


Keep in mind, every city is different on what requires a permit, so it's best to talk to professionals in your area about certain instances. Another way to go about it is to pull a "homeowners permit". The same process will occur, but you're legally allowed to do the work yourself if you want to. You still have to pay the permit fees and you still have to get it inspected, and you have to ensure you're doing it yourself and not hiring it out.

As the owner, you may or may not be allowed to pull your own permit.  Most cities here allow it, with the restriction that you must occupy the house when you get the permit, and must continue to occupy  it for a year after the work is completed.  If its a fix and flip or rental, no dice.  You need a GC or the specific trade to pull those permits.

Getting a GC license is not too big of a deal.  There are schools that will train you for the test.  Its usually an open book (i.e., code book) test.  But there is a fee, and you have to pay each year to maintain it.

Here's an old thread of my failed fix and flip deal:  https://www.biggerpockets.com/forums/67/topics/52780-don-t-mess-with-building-inspectors

@Jon Holdman Thank you for that explanation it was extremely helpful! You did an excellent job with the example you gave as well I appreciate it 

@Kristen Ray speak to the town/city you plan to flip in. Every town is different. Some towns allow homeowners to pull all the permits. Some towns don't. Personally I always make sure I hire MEP subs that can pull their own permits and require them to do so. Make sure they are insured and if need be licensed. Again some areas don't require licensing.

@Jon Holdman from my understanding, getting a GC license is more of a big deal than just taking a test. My partner is trying to get his now, but he has to have proof of construction experience for more than 5 years. 

@Thea Linkfield I'm sure this varies from state to state or even for different locales.  I just took another look at Aurora CO, which was the city where I looked into doing this.  That was about 10 years ago, and I did speak with a person in the building department (in person) who explained it just required passing the test.  Now they say you need "ICC Building Contractor "C" Certification" for a residential contractor license.  So, I guess they're out of the testing business.  As far as I can tell, though, this is still just a test.  OTOH, the "remodeling contractor" license does require two years documented experience.  Perhaps that's an alternative to the test.  I couldn't figure out from their web site which type of license is required for what type of permit.

Now, for some trades, electric and plumbing in particular, there are state licenses, and those do require significant experience.

Originally posted by @Steve DellaPelle :

@Kristen Ray ...

Permits cost money from the city but they ensure that everything is done correctly and up to code. I would highly suggest talking to your City Hall Inspection Department for more information on what requires a permit and what does not.

...

I would make a slight change to the wording in the snippet in the quote, to read as follows:

"Permits cost money from the city but they ensure that everything is done correctly and up to THE BUILDING INSPECTOR'S OPINION OF WHAT MEETS code."

If the inspector is not paying close enough attention or is unaware of some code aspect or detail, you could end up with work that doesn't actually comply with the code but gets passed nonetheless.

How would the city/town know that the work was done without a permit? How/why would they be alerted to any necessary repairs (i.e. pluming, electrical and other major repairs) on a residential property?

@Kristen Ray the town has records of all permits pulled for a property and the land card reflects changes in layout or footprint. so adding a bathroom for example, would result in a discrepancy if not permitted and could result in issues when you sell. they can make you tear the work apart
sorry got cut off. the town can make you open walls and all kinds of things if they find out. it's a roll of the dice.

Permits are the authorization process by which the city documents and oversees the work being done. When a project has permits the project is overseen by the city by building inspectors. Inspectors will periodically visit the property to inspect the work at the beginning, potentially in the middle and definitely upon completion in order to ensure city codes are met. Although permits may be revenue generating for the city, they are there to actually protect the property owner/investor, homeowners/tenants and contractors from hazards by enforcing the adherence to the conformity which the city has made the standard. Each trade has their own specification under which a permit needs to be received. For Chicago, I've learned that it is best to know when a permit is not required as it seems to be a much shorter list than when it is required. *Smile*

The typical underlying thought is that a contractor that can apply for and recieve permits is licensed to work with the city or municipality of the project property. When someone is licensed they are probably already quite knowledgeable on the city's code and they are held at a higher standard as this is their business. This should but doesn't always equate to the fact that they will provide a better quality service or it does not mean they will complete tasks without issue, but it also serves as a clue to their level of professionalism, experience and overall reliability for their trade.

Advantages

- Quality of work may be at a higher standard;

- Aside from the time waiting for the inspector's review the actual project work may be done in a much more efficient timeline; and

- Overall project and the work done will/may have more integrity.

Disadvantages:

- Codes and permits vary and are comprised based on local city/town needs;

- Per @Steve Babiak, the code may be up to intepretation in some cases and may still lead to non-complaince;

- Licensed contractors typically charge more money as the permits subtract from their bottom line;

- The process of obtaining the permit, getting any inspections and follow-up inspections may make for a longer timeline; and

- If you don't pull a permit and get caught, you may be fined, the work may be delayed or rework may be required.

My humble advice is to...

- Ensure work is done by licensed (if required), bonded (for performance) and insured contractors;

- Get a performance bond from the contractor for any monies you've paid;

- Have the contractor add you to their insurance policy for the work performed;

- Sometimes a contractor will ask you the investor or homeowner to pull the "homeowner permit" as mentioned by @Thea Linkfield. They say it will either be faster, may not cost as much, or

something else. I'd be weary of any contractor that is licensed if they provided this advice;

- It is best to pull the permit the work demands it; and

- You should maintain a copy of any permits obtained for your own records.

As far as how would you get caught...

- They can be alerted by annoyed neighbors.

- Something can go wrong in the rehab which raises attention to the project;

- City inspectors drive around. If they are suspicious of work being done without a permit they will investigate. Here, it is rather easy. For example, while leaving another project site, they drive past your site and see 2 work vans where there quite a number of drywall sheets being offloaded and carried into the building. The permits are supposed to be prominently

displayed (i.e. in a window, on a gate) but they don't see it. They look it up in their database and don't find it. Busted!

To permit or not to permit that is the question... If you permit, the profit may be less but you can sleep at night. If you don't, it is a gamble as this can happen but it may not. If it does happen it is a worse situation. I've done it both ways without issue but in the future, I plan on always getting the permit because I become a Nervous Nelly.

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One thing I would caution against as an investor...

If you own the house as an individual, then you can pull the permits yourself, have someone else "help you" to do the work, get it inspected, and get it done properly.

If you own the house under a legal entity (like an LLC which many people push for for real estate investors), then you CANNOT pull a permit yourself. You MUST hire someone else to pull the permit for the legal entity...and usually, there is an upcharge by the contractor for this process.

Just some food for thought....

(720) 598-0793
Originally posted by @Kristen Ray :

How would the city/town know that the work was done without a permit? How/why would they be alerted to any necessary repairs (i.e. pluming, electrical and other major repairs) on a residential property?

In the case of my problem deal, the rehabber had permits for roof and siding.  During these inspections, the inspectors noted there were new windows, too.  And looking inside, they noted that there were new cabinets in the kitchen.  This was enough for them to start asking questions.  Then they looked at the permit history and inspected the property and noted old work (like that laundry room sewer line) that did not have any matching permit.

Turns out, they (and other cities here) have a program that takes a look at new real estate listings.  It is trivially easy to look at public records and determine a property is a fix and flip.  So, when a new listing pops up, the city has a look at the permit history and takes a look at the house.  If it looks rehabbed, they request a look inside.  

The very first time I talked to a building inspector he brought up that safety was the key thing.  They want work done in such a way that people don't get hurt or die.  It makes me want to tear my hair out when people talk about building codes like something to be skirted if possible.  Utter bull****.  Building codes exist for a reason, and that reason is very often because people have died.  I recently read an article about how much time you have to escape from a house fire given current construction techniques and materials used as well as materials present in most houses.  The answer:  three minutes.  Their advice:  grab nothing.  Get out.  Stay out.

The absolute number one reason why permits are in existence is ensure that the work is being done to correct building codes. And if you have the opportunity to make improvements and update a buiding to current building codes you do so.

It is ALWAYS better to get a permit! You can even do some work on your own and pull your own permits. Talk with your local inspectors to get a better idea.

It's also in your best interests to have permits. You show your newly renovated suite to someone, and in the portfolio you show the documents with the permits you have had approved, a prospective tenant will feel better knowing the work was done correctly and to code, and that you're not trying to get things done cheap or cut corners which may risk their health or safety.

Yes it may be a bit more time consuming to pull permits. But if you're organized and ahead of the game you can usually get it all done without having any major issues or hold ups in your project.

Originally posted by @Jon Holdman :
Originally posted by @Kristen Ray:

...

...  It makes me want to tear my hair out when people talk about building codes like something to be skirted if possible.  ...

Jon - it looks like you have heard that kind of talk far too many times already :)

[Sorry, hard to resist that ...]

Originally posted by @Steve Babiak :
Originally posted by @Jon Holdman:
Originally posted by @Kristen Ray:

...

...  It makes me want to tear my hair out when people talk about building codes like something to be skirted if possible.  ...

Jon - it looks like you have heard that kind of talk far too many times already :)

[Sorry, hard to resist that ...]

Yes, exactly.   My mom was looking into building a new house a couple of years ago, and getting a local guy to do it.  Rural Missouri.  I kept bringing up building codes and she kept saying "that's not really an issue here".  Thankfully she ended up buying a modular and this wasn't really an issue.

Eek, I hope I did not piss any one off – feels like I lit a fire. If so, I sincerely apologize.  (This is why I have been so hesitant to provide feedback.  Trying to overcome my fears.  Not a good attempt, I guess.  LOL)

Allow me to reiterate, I agree that it is ultimately about safety and that is why I suggested getting permits. My final comments are because it is still a choice that needs to be decided because work can be done without the legitimacy of permits if desired. We all know this is a common perceived contemplation rather than a mandatory must in the minds and discussions of some investors. In the long run people will do what they want and will have to learn their own lessons.

Kelly

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@Alfred Edmonds @Kelly Page @Ed E. @Jon Holdman @Steve S. @Steve Babiak  

Great discussion!! I love the feedback! Recently, I had a discussion with one of my agents regarding finding reliable contractors. Her advice was to get one who could pull a permit. However, I was not completely sure what she met. Thinking of past personal experiences on my personal residential properties, I have had extensive work done and not once has any of the contractors mentioned a permit. My background is in medicine so I had little to no experience with contractors outside of the work I had done to my residence. Thinking back to all of the rooms I had built, decks added, electrical work, finished a basement etc and not once did anyone mention a permit.  Thus, when the realtor mentioned pulling a permit I didn't understand why it was so important. You all did an excellent job explaining the importance of obtaining the necessary documents prior to the work being done. I will consider myself lucky that my previous home improvement projects went over well.  As an investor I will read up on the required permits for the towns I plan to invest in. 

Y'all are awesome! Thanks again

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Money right? Let’s not forget about being about to claim capital improvements! Unlicensed work will be much more difficult to claim for appreciation and deductions.

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