Should You Obtain Building Permits when Flipping Houses?

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I have repaired a lot of houses in my career, whether they were rentals, flips, or even bank-owned properties that I listed. Depending on the quantity and type of work you do, you may be required to get a building permit from the city or county the property is located in. The tricky part about building permits is every city and county requires something different for when a building permit is needed. They also have different processes for getting the permits, inspections, and completion of permits. In some cases, you may be able to get away with avoiding permits, but in other cases ,it could hurt a seller if they choose not to get permits when they should have. I personally get permits on some of the work we do—but not everything. If you are repairing a house, please check with your local laws and guidelines and discuss any concerns with an attorney, as I am not providing legal advice.

Why do cities and counties require building permits?

Building codes have existed in some form for thousands of years. In Babylon, a building code said if a house fell on the occupant because the builder messed up, the builder would be slain. You can see more of the history on building codes here. The purpose of building codes is to ensure houses are built safely and correctly. The saying “They don’t build houses like they used to” is meant to construe that houses were built stronger in the past. It is true that some houses were build better in the past, but I have also seen some horribly built houses from 100 years ago. I flipped one earlier this year, and I swear part of it was held up with duct tape. You can see the video below.

They had very few building codes in the past, so some houses were built well and others were not. Uniform building codes have helped make houses safer and stronger. If you repair a house, you also may be required to adhere to building codes, and a building permit ensures sure you do so. It is important to check with your city or county to see what kind of work requires a permit in your area.

How to determine what to repair on a flip.

How hard is obtaining a building permit?

Obtaining a building permit can be really easy or really difficult depending on the property’s location. I am in Colorado, and each town has different guidelines, inspectors, and processes. Here is what I have had to deal with lately:

  • One local town can take up to three months to approve a building permit. That means if I buy a flip, I cannot even start the work for three months, assuming they approve the permit. They also require lead-based paint and asbestos inspections on older houses.
  • Another town takes two weeks to get building permits approved and two weeks for every building permit inspection.
  • Some counties will approve a permit and get inspections scheduled the same day they are submitted.

Not only does getting permits completed take a lot of time in some areas, but they can be expensive as well. Usually, a permit is priced based on the cost of the work being done. On a decent sized remodel here, a permit will cost $500 or more. One nice thing about permits is that you usually do not have to pay local sales tax on materials when obtaining a building permit.

How much does it cost to repair a house?

Who needs to obtain a building permit and when?

There can be dependencies deciding when to get a building permit. For one thing whether you live in a house or are an investor renting or flipping a house makes a difference. Some towns will not require a building permit if the homeowner is doing certain types of work, but they will require a permit if an investor is doing the same type of work. I know building permits are supposed to ensure things are safe, but I am not sure how letting a homeowner who may have no idea what they are doing complete work without a permit makes sense while an investor who has experience fixing houses is required to get a permit. Some towns also have different requirements if the owner of the property, as opposed to a contractor, gets the permit. Some towns in my area also require any permit work be done by a licensed contractor, while other towns have no such requirement.

What work you do also will determine if you need a permit or not. Typically, these repairs will require a permit:

  • Removing or adding walls
  • Additions
  • Electrical work
  • Plumbing work
  • HVAC work
  • Roofing
  • Replacing drywall
  • Foundation work
  • Finishing a basement

These repairs may not require a permit:

  • Painting
  • Replacing flooring
  • Replacing doors
  • Replacing fixtures
  • Patching holes

If the repairs are cosmetic, a permit is usually not required, but every area has different requirements. Again, if you live in the house, you may be able to do more work without a permit than an investor can. You may be able to do the work yourself without a permit, where a contractor may be required to get one. The codes can be very confusing.

How to fix and flip houses?

Have I always gotten building permits on the projects I do?

building permits

I will get permits on some houses and not get permits on other houses. In the past, we would never get permits because cities did not make a big deal about them and no one seemed to care if permits were pulled or not. Now, it seems like more and more buyers are concerned with whether permits were pulled or not. When I sell houses, many buyers will ask for copies of the permits that were pulled, even in cases where we did not do work that required permits. If a house needs a ton of work, we will have permits pulled because we know the buyers will ask for them. If a house does not need major work, we will not pull permits. We also pay attention to what towns we are buying in and how hard it is to get a permit in those towns. Having to get a permit can add a lot of money to the costs of a project because of the added time it takes for approvals and inspections.

If we are having a furnace or a roof replaced, we can also have the electrician or roofer pull a permit just for that job.

You can learn more about flipping in my book: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties. It is available as a paperback, eBook, or audio book.

What are the downfalls of not getting building permits when you need them?

Many remodeling jobs are done without building permits, even when they should have been pulled. In the past, it was not required that building permits be pulled for as many things as they are now. In my area, you did not used need a building permit to finish a basement, especially if you were occupying the house. If you finished the basement long enough ago, you did not need to have an egress window to have a legal bedroom in the basement either. If I buy a house now that has a bedroom in the basement without an egress window, it could be grandfathered in as a legal bedroom because the work could have been done before egress windows were required. Some investors can get away with doing work that needs a permit without getting one by saying the work was done prior to them owning the house.

If you are finishing a basement or adding on to a house, the county or city may not count the added square footage in public records without a permit. If the city finds out you added onto the house without a permit, they could require you to bring all the work up to code. That could mean tearing out drywall, insulation, and other items so the city can see how the work was done.

If you are doing repairs, like installing a furnace, you may be able to get a permit after the work was done if someone asks about it. Like I said, it can scare buyers away if they think work was done without a permit that should have been done with one. If you are doing a big project that needs permits and the city or county finds out about it, they can issue a stop work order and prevent you from working until permits are pulled.

How to buy houses below market value.

How dangerous is it to buy a house that did not have building permits pulled?

A lot of people are worried that houses that have work done without building permits are not safe to live in. Some houses are not safe to live in because bad work was done on them. However, some houses are not safe to live in that had permits pulled as well or are old and have never been updated. A building permit does not mean a house is safe or the work was done right. Here is why I think building permits are not that important:

  • Many inspectors do not know as much as the contractors doing the work. An inspector must know a little bit about everything, but the contractor, like an electrician, is a specialist that usually knows much more about safety than the inspector.
  • A house could have been remodeled before permits were required, or a homeowner could have remodeled their house when they did not need permits. A house technically could have work done that did not need permits but is still unsafe because of shoddy work.
  • Excessive requirements for building permits and time frames to get those permits encourages people not to get permits. Even though work was done without a permit, it does not mean the work was done right.

If work is done on a house, I would be more concerned with who did the work than I would be if permits were pulled. I would want anyone doing electrical work to be a licensed electrician. I would want the roof done by a licensed roofing company. It can be tricky with contractors because some are licensed and most are not in my area. If they are doing general cosmetic repairs, permits and licenses are not a big deal to me. If they are doing HVAC, electrical, or plumbing work, I would be more concerned with licenses and their qualifications to do the work. If a house needs foundation work, I would want a structural engineer to assess the problems and how to fix them, but I would not be concerned as much with permits.

Conclusion

Building permits can be a huge pain when repairing houses as an investor. However, not pulling them on big jobs can cause many problems, including being shut down by the city. On smaller jobs, you may be able to get away with not pulling permits, but make sure you know what is required in your area. It may be wise to pick and choose what projects you do and where based on the permit process in that area.

 

 

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4 Comments

  1. Marty October 26, 2017
    • Mark Ferguson October 30, 2017
  2. David Krulac October 21, 2017
    • Mark Ferguson October 23, 2017

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