New to flipping. Do I really need a General Contractor?

Question

My partner and I have just started a house flipping business and plan to use local workers whom we trust and who have done remodels on investment properties for us before. However, these workers are not licensed, but they work hard and efficiently.

Most of the rehabbing we are planning for these flips is cosmetic. The most recent house we offered needs a complete remodel inside, but the structure is sound.

For example, we need new kitchen cabinets, sinks, paint, flooring, and drywall in certain areas of the house that have been damaged, as well as new light fixtures and interior and exterior paint. The work is mainly cosmetic, except for the drywall repairs.

We are concerned about hard money lenders requiring licensed professionals to do the work or requiring licensing later on, leaving us scrambling to find a general contractor.

Fortunately, one of our hard money lenders has said they will not ask to see licensing as long as we are not doing anything structural to the house. Another one of our HMLs has stated that they want to see licensing anytime we are going to have any work done to pull permits.

We are brand new to this as you can tell.

Scott E. · Answer

You have 4 options...

1. Get your license

2. Hire a licensed general contractor

3. Have 'your guys' get licensed

4. Fire 'your guys' and hire licensed sub contractors

That's it. Period end of story. You do not want to expose yourself to the unnecessary (and endless) liability of hiring unlicensed workers for what you're describing as full home renovations.

Matthew Sanders · Answer

In NC you can act as your own GC if the total project cost is less than 40k. The only trades that need to be licensed are HVAC, electrical, and plumbing. You will have other trades that have to be licensed such as well and septic for example but most flips are just the three mentioned earlier. Don’t listen to these guys that tell you to get a gc no matter what, they’re the idiots. Unless you’re doing this at scale, a gc is going to eat up 20-25% of your profit, aka 10-15k… no thanks. If you manage the first couple of flips and learn how to do some of the work yourself such as hanging cabinets, running lvp, and installing doors and windows, whenever you do hire a gc you’ll know what’s involved and if their price lines up with the work being done. If you can’t change a door knob by yourself then get a gc. I flip 4 a year and work a full time w2, never hired a gc and at this scale I never will.

Peter Tverdov · Answer

Brand new to flipping and you want no oversight on the project from a professional.

Feel bad for whoever buys that flip.

David M. · Answer

@Kevin G.

I suppose the issue is who is looking for what... and what risks are you looking to take.

Nothing is wrong with you doing the GC "function" of getting the trades in and out, etc.  What you've listed as work is really nothing that a "regular" homeowner would do to their own home, even potentially at the same time.  Also, none of it generally, unless your local municipality reuires otherwise, requires a permit.  Even if it did, you could/should be able to pull the permit yourself.

"Everybody" wants "licensed professionals" because it provides an "air of legitimacy."  Funny... How many posts/threads have we had on BP talking about crappy contractors/trades and how its hard to find good help???

I have no idea if your area requires a GC license/registration...  That's a local legal / regulatory issue...

If anything, what you are doing is great in my opinion to learn.  Lets face it, better to learn on "somebody else's" house about having/hiring painters, flooring guys, electrician, etc.  Its really no different than if you did it on your own home, then needed to move so you sell it.  I've had transactions with "homeowner" specials that you just shake your head --- and they call it pride of ownership :) lol

I'm not "anti-town" or "anti-gov" but sometimes the system is silly.  its not like licenced trades don't mess up --- why else would they need insurance?  Why else do we always ask for referrals?  At least in NJ, permits are "kinda useless" since there was a determination a while back that the town isn't liable.  So, if I did an electrical upgrade that was inspected by the town, and my house burns down for faulty wiring (that was inspected), the town carries no liability.  So, other than another set of eyeballs, there is no risk transfer.  Its still about "humans.."

I would say however, you might want to get some insurance if you do get going on this...

Good luck, and take care.

Jim Kalish · Answer

@Kevin G. Sorry to pile on Kevin, but doing a major flip without a GC is asking for trouble.  All of the comments above are right on the money.  Even if you get through the flip without one, once you go to sell a lot of realtors will protect their clients by looking for permit status.  If they see you haven't pulled any they will at least pull out or possibly contact the building department.  Permits are not a punishment.  They protect you and the final buyer.  How would you feel if the "skilled"  handyman mis-wires something and there is a fire?  Its not worth it.  And lets face it, when you ran your numbers you should have already figured in the cost.

Now if its just cosmetic, paint, flooring, etc, no you don't need a GC.  You could even do a simply kitchen or bath remodel like new cabinets and counter tops.   But if you start changing plumbing or electrical then by all means get a good GC.

John Clark · Answer

Yes, unless you are a complete idiot. Get several flips under your belt and get a sense of  what things you can do on your own. Then maybe, maybe, you could do some stuff on your own. I think you will find you can't do much, especially when you have to co-ordinate with the general contractor doing the stuff you you know you can't do.Don't forget -- who draws up the plans? The general won't because you are doing some of the work and he can not represent to the city when stuff will be done and whether it will be up to specifications/code. You can't 'cuz you just don't have the ability.

Pat Mulligan · Answer

HAPPY REHABBING!

Andrew Syrios · Answer

For a big project, I would say yes, especially for a beginner. For a small one (say under $15,000 in repairs), you can probably get away with handyman/vendors/etc.

Mike Klarman · Answer

Kevin, navigating the rehab is probably the toughest R of the BRRRR strategy.  I helped navigate the Rehab of 30 projects last 6 months and this is what I can share with you:

1) As the home owner, you do not need a GC license to hire subs, however if you are brand new sometimes a lender will require a GC to make sure things go well.  The caveat to that is that GCs range greatly in quality.  So the options are: You are a GC and are self managing, you are hiring a GC to manage, You are self managing and hiring your own subs, you are managing and actually performing the work.

2) As far as municipal inspections go, you always need to pull a general work permit per se if you are going to be demoing and then doing an interior finish.  If you are not touching mechanicals then there won't be an inspection until you go to sell or refi to put a renter in there.  At that time there will be an inspection for occupancy safety.  They'll make sure all the windows work, and that the smoke alarms are installed correctly, that any stairway with more than 2 steps has a railing, etc.  So it would be nice to know that list for your jurisdiction so you can just include it in every rehab so at inspection time you come up with zero violations.

3) If you do touch mechanicals or foundation, make sure to follow municipal protocol.  You can get hefty fines for let's say doing new plumbing work and closing up the walls before the city can inspect, same with electrical.  They'll make you rip open the walls to inspect and then reclose them up on your dime.

I'd say follow the municipal and lender guidelines as closely as possible for rehabbing, you'll feel better knowing your bases are covered.

Carlos Ptriawan · Answer

I agree with this what matter is the 'qualified' subcon.

New to flipping. Do I really need a General Contractor?

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