Yes, indeed, as you get going as a house flipper, you will probably need to get a lot of permits. In fact, you’ll need so many, if you’re flipping a lot of houses, that you’ll wind up having to create a mini compliance effort of your own.
Here is what you need to know about permits.
What is the Purpose of Permits?
The purpose for issuing permits is to give your city, county or state officials oversight over construction practices and standards. There are good reasons for this: Solid construction saves lives. In areas where construction quality control is poor or nonexistent, a 7.0 magnitude earthquake can kill hundreds of thousands of people. Many of the 316,000 people who perished in the Port au Prince earthquake of January, 2010 died when their homes and apartments collapsed on them.
The U.S. is no stranger to strong earthquakes. But we have not had the same massive casualties result even when these quakes strike heavily populated areas, in part because the U.S. does have a rigorous permit system and construction standards.
Issuance of Permits
Typically, construction permits are issued at the city or county level in the municipality where the property is located. It’s very common for contractors to obtain permits on property owners’ behalf. They work the fees into their estimates.
Sometimes a disreputable contractor will attempt to underbid everyone else by skipping the permit process altogether. If you get caught doing projects without a permit, though, you can expect to pay a hefty fine, and you may even be required to restore the property back to its original condition at your expense – no matter how absurd the requirement. And yes, you’ll have to pay for a permit to undo the work you did without a permit.
That can easily unravel your profits on a given property many times over – and other contractors in the neighborhood may be happy to rat you out if you are using someone they know to be an unethical contractor.
You need permits for certain kinds of construction or remodeling projects even if you do the work yourself without hiring a contractor. If you do the work yourself, you have to comply with all of your county’s regulations concerning construction and labor laws, just as if you were the licensed contractor.
For example, you need to submit your construction/renovation plans to the city when you get the permit. When you get a permit, you have to build to those plans. If you make changes, you have to go through the permit office again. If you go off plan, the city inspector may force you to undo everything and start over – at your expense.
If you hire anyone, you will also have to buy workers’ compensation insurance to protect him or her. That insurance also protects you, as well, since insured workers will have their medical expenses paid for. They won’t have to sue you to get their bills paid if they get hurt on the job.
If you don’t hire anyone, you’ll have to complete an owner-builder statement, certifying that only owners will be doing the work. Most jurisdictions will not issue a permit without workers’ compensation insurance or an agreement to buy it, or an owner-builder statement.
Note: Some jurisdictions exclude house flippers from the definition of owner-builder, so check the regulations in the city and state where you live. For example, per the California Contractors State License Board, to qualify as an owner/builder, the following criteria must be met:
- The work site must be the principal place of residence that the owner has occupied for 12 months prior to completion of the work.
- The homeowner cannot construct and then sell more than two structures during any three-year period.
See additional responsibilities of owner/builders in California (other jurisdictions are very similar) here.
What Projects Don’t Require a Permit?
Not everything requires a permit. Some jurisdictions exempt the requirement for projects below a certain dollar amount – say, $5,000, or for purely cosmetic jobs that don’t affect the structure of the property, such as pressure washing or painting. Your jurisdiction may not require a permit to fix or construct a very small fence, but more substantial fencing may require a permit. And some areas don’t require a permit for minor basement work. However, every jurisdiction is different.
You may also need a permit for anything that will involve digging. This allows the city and county to ensure that you won’t accidentally cut a power, water, communications or sewer line.
Your city probably has information it publishes both for homeowners and contractors, detailing what does and does not require a permit. Make sure you check your local sources before proceeding.
If you are playing the fix and flip game, you pretty much need a general contractor involved in all your projects. An experienced general contractor will be very familiar with permit requirements in your specific jurisdiction.
Jason Van Steenwyk is a veteran financial industry journalist who has been fighting to make the world safe for the retail investor since 1999. He lives at Ground Zero of the real estate bubble in Fort Lauderdale, Florida.