Mike is a journeyman carpenter and I recommend him to my real estate investing colleagues every now and then when they need a hand rehabbing an investment house. He’s a hard worker and ambitious. I like that. The other day he tentatively asked me a few questions about my own career in real estate investing. It seemed he had more on his mind than just casual curiosity and one of his questions got more complicated than he anticipated.
He was wondering: Do I need a contractors license to flip houses? Mike has the skills to renovate houses and he wanted to use those skills to up the ante on his income potential. He planned to find fixer-upper homes for sale, rehab them himself, then sell at a profit. I believe Mike has a pretty good plan but, unfortunately, there’s no one-size-fits-all answer to his question.
Do I Need a Contractors License to Flip Houses?
Mike’s question is complicated because the laws on whether you need a contractors license to flip houses differ widely from place to place. Some states require a contractors license for any contracting work, while others currently don’t require one at all. The answer may also depend on your annual volume of your work or on how contracting is defined. Is it contracting, for instance when you are working on your own investment house? Is it your house if it belongs to your LLC? Only your local authorities can say. You may be required to obtain a contractors license from the state, county and sometimes even city—or, all three. To give you an idea of the scope of variation nationwide, we can look at a few examples of the current rules for licensing contractors:
- Several states, such as Alaska, Michigan, Nevada, New Mexico, and Utah, require licensing for any contracting work.
- Texas and Maine have no licensing for general or residential contractors.
- Delaware only requires licenses for jobs worth over $50,000, while South Carolina requires them for jobs worth $200 or more.
- Pennsylvania issues a home improvement contractors license and individual cities issue an array of other licenses, including for general contracting. There are complex webs of reciprocal recognition among the cities. Indiana, Kansas, Kentucky, New York, Ohio, South Dakota, Vermont have similar systems.
It’s important to dig deep to find out what your local requirements are. You could find yourself in a serious bind when rehabbing houses to sell without a contractors license if you are required to have one. Working without the required licensing or permits could have severe legal consequences, such as fines or even jail time. You may even find that rehabbing a house without those permits undermines your ability to sell it. In many states, you will have to disclose any unpermitted work, which will more than likely send potential buyers packing. They simply won’t want to bear the consequences of inspectors coming down on them, being unable to insure that portion of the house, or deal with the mortgage company’s rules. For you, what’s the use of buying an investment property if you can’t sell it?
After doing some research on your local laws, if you discover that you are not required to have a contractor’s license to flip houses, there may still be good reasons to get one anyway. For instance, you may be able to save money by hiring workers directly instead of hiring a contractor and their team. In addition, since local authorities may require a permit for some activities—roofing, for example—and only give a permit to licensed contractors. If you are licensed, you can skip the middleman and pull the permit yourself. And, you can maintain greater control over the project, so you know the work gets done right. Having a contractors license may also increase the homebuyers’ confidence in you as a professional real estate investor.
But, you have to weigh the benefits against the less appealing aspects of being a licensed contractor. It can take a lot of time, for instance, to become a contractor. Training may include a college-level course that covers topics like building codes, carpentry, excavating and grading, using concrete, and similar technical aspects of a contractor’s work. You will learn about these topics whether or not you ever intend to do that kind of contracting work, however. The biggest hurdle, however, is that some locales also expect you to have a few years’ experience working in the construction field. If you do pass the requirements and exams for becoming a licensed contractor, you’ll need to consider the risk and money involved in playing the role of contractor on your own house flipping projects. Contractors have an increased liability for injuries that take place on the job so you’ll also need to carry a hefty insurance policy.
If you are not currently required to have a contractors license to flip houses in your locale or you decide against getting one, always be sure to hire the right people for your rehab team. If you hire an unlicensed contractor in a situation where they should be licensed, you may not be able to get permits for the work, cannot be certain of the quality of the work done, and you have no recourse to a higher authority if there is a dispute. These are significant risks that could damage your business reputation—and your bottom line. No one wants to see that happen.
Get Support to Make the Best House Flipping Decisions
I was glad Mike approached me with his question. Whether or not to get a contractor’s license to flip houses is just one of many important decisions that he—and you—will make developing a professional real estate investing business. Keep in mind that a strong network of support is a tremendous asset. In fact, that’s one of the things I value most about being an independently owned and operated HomeVestors® franchisee—the atmosphere of support. I felt it from the very beginning, with the week of intensive initial training. Since then, I’ve had a dedicated Development Agent who gives me invaluable advice, even if I don’t have to lean on him so much anymore. Nowadays, I share what I know with my local and regional colleagues all the time.
Build your professional real estate investing business from the ground up, whether or not you need a contractor’s license, by calling HomeVestors® today.
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