Oregon flipping laws

[Nels Norquist]

I have clients who are in contract on a short sale that they were planning on using the BRRR method on. After going through inspections and looking at comps, they are thinking it might end up being better for them just to flip the property. I think since they had bought with the purpose of renting, if they decide to sell they will probably be fine, but I wondered if anyone had experience with this. I have seen @Jay Hinrichs talk about having a developers license in Oregon, as it is less work than getting the GC, but I have found some exemptions and wondered if I am reading this right. Seems to say that if you do 3 or less flips a year you don't need a GC or Developers license, thoughts?

(6) An owner who contracts for one or more licensed contractors to perform work wholly or partially within the same calendar year on not more than three existing residential structures of the owner. This subsection does not apply to an owner contracting for work that requires a building permit unless the work that requires a permit is performed by, or under the direction of, a residential general contractor.

Thanks

Nels

[Tyler Combs]

Hi @Nels Norquist, it's tough to figure this one out because of all the conflicting information you hear about this and the "3 flips or less rule".  To make your own determination, the Oregon state page with links to both of the ORS statutes is here: https://www.oregon.gov/CCB/licensing/Pages/whoneed...

My interpretation is that if you buy a house and make improvements with the intent to sell, then you need a Residential Developer's License, even if you are hiring a GC.  In ORS 701, it defines a Developer as follows: 

(6) “Developer” means a contractor that owns property or an interest in property and engages in the business of arranging for construction work or performing other activities associated with the improvement of real property, with the intent to sell the property. 

The key here is "the intent sell".  If you're flipping a property, you are directing a contractor to make improvements in the property with the intent to sell.  It doesn't matter if you're the homeowner and you do less than three a year, you controlling the construction process for a product that will be sold to a new buyer, and the state wants you to have a bond and insurance to protect that new buyer if you screw it up.  A developers license doesn't require any testing or experience like a GC license does, just proof of your bond and insurance.

Best of luck!

[Jay Hinrichs]

@Tyler Combs Yup and I have the fines that I paid to prove it.. I had one flip in Salem in one LLC.. it was the ONLY deal we did in that LLC in Oregon.. and I got fined.. I argued the point. but pretty hard to argue when your crew is in there doing rehab.. LOL.. My attorney thought we could fight it.. but it would cost more than the fine to pay him to do battle.. the state knows it. the fine can be as high as 5k and of course I got one of those too..

So then I get the developers license for my main entity that is 50% owner of many other LLC's for different housing communities we build.. got turned in for that.. I said hey wait I have a developers license and I own 50% of the LLC that is building those 27 homes over there.. :)

Nope that one cost me 5k and I was lucky at that.. the developers license must be in the name of the LLC that is in title to the property.. or if its an individual in that individuals name....

so now I have 4 redundant developers licenses.. and the one I got for the 27 homes since that LLC has been sunset that developers license has expired as well..

but I need a bond for each one new set of insurance for each one..   Now if I had a GC license I would not have to do that.

but then I would have to pass the test.. and then I would have to have much higher insurance costs than the way I have my business set up now..   And the issue is for who ever is flipping and breaking the law.. if the buyer or someone gets wind you have no defense and your set yourself up for liability to a owner that would be much harder to defend or impossible. 

[Tyler Combs]

@Jay Hinrichs - Wow, you either have really bad luck or someone at the state has it out for you!  The way we avoid having to get multiple licenses in multiple LLCs is having one corporation that owns all our active projects, and then sells them or transfers them after the work is complete.  We've also tried hiring an eligible GC and starting our own in house construction company, but that ended up being more trouble than it was worth. :)

[Jay Hinrichs]

Originally posted by @Tyler Combs:

@Jay Hinrichs - Wow, you either have really bad luck or someone at the state has it out for you!  The way we avoid having to get multiple licenses in multiple LLCs is having one corporation that owns all our active projects, and then sells them or transfers them after the work is complete.  We've also tried hiring an eligible GC and starting our own in house construction company, but that ended up being more trouble than it was worth. :)

ya unfortunately in our model we have to isolate each housing community.. for liability reasons and I usually have different investors in each LLC.. so just the cost of doing business.. Not sure they are picking on me I had a 10 year run of flipping 50 plus homes a year and never had the license did know it existed LOL.. so in the grand scope of things.. its all good..

[Nels Norquist]

Originally posted by @Jay Hinrichs:

Originally posted by @Tyler Combs:

@Jay Hinrichs - Wow, you either have really bad luck or someone at the state has it out for you!  The way we avoid having to get multiple licenses in multiple LLCs is having one corporation that owns all our active projects, and then sells them or transfers them after the work is complete.  We've also tried hiring an eligible GC and starting our own in house construction company, but that ended up being more trouble than it was worth. :)

ya unfortunately in our model we have to isolate each housing community.. for liability reasons and I usually have different investors in each LLC.. so just the cost of doing business.. Not sure they are picking on me I had a 10 year run of flipping 50 plus homes a year and never had the license did know it existed LOL.. so in the grand scope of things.. its all good..

10 years at 50 flips a year is a great run without getting "caught" ha

 Thanks guys. I can see that if you buy with intent to sell you should have developers or GC. 

I am not sure what the exemption for 3 or less houses pertains too still? I guess maybe if you own 4 rentals and have contractors work on all 4 in the same year you would also need a license? 

Oh well, thanks again for the input

[Geoffrey Vallee]

Great discussion. I called the Oregon CCB to better understand the application of the statutes. Specific guidance. One may purchase and sell a home with the intent to profit three times in one year without a contractor license or any other license. However, one may NOT perform any of the work to improve the home. One must employ a licensed contractor to perform improvements. There is a list of work that qualifies as requiring a contractor. Basically anything except cleaning yard, pressure washing, and general cleaning. 

Hope this helps. 

Has anyone seen Oregon legal restrictions that require a flipper to hold a home for any period past purchase before selling? A realtor argued that she cannot list a home for an owner that the owner has not owned for 90 or more days. Seems crazy to me. But could not find anything to refute.

[Larry Fried]

@Geoffrey Vallee, I think the realtor must have been assuming the buyer would be getting FHA financing or perhaps didn't know the rule in detail. FHA loans require that the seller own the property a minimum of 90 days to approve the loan. I don't believe that is true of conventional financing, and it certainly doesn't matter for a cash buyer.

[Geoffrey Vallee]

Larry, thank you for the reply. I assumed the time frame concern was related to financing or taxation. Appreciate the thoughtful response. 

Geoff