Should contractors for flipping be licensed or unlicensed?

[Claudya Richardson]

Received advice that my general contractor should be licensed to prevent me from legal implications after sale. I've ran into so many people that had problems with their home after a flip or a flipper used non licensed people. What is your rule on this? Could there be potential legal implications after sale?

[Will Barnard]

These questions always seem to get answers for both sides and the original poster is left with their same question.

So let’s go over some simple facts: Most but not all states require contractors to be licensed. I am amazed that some states don’t. If you state demands that the contractors doing work on your rehab be licensed, then hiring any unlicensed individuals or companies can lead to legal and financial problems. So the choice becomes, do you take that risk to save a buck or not. Typically unlicensed contractors will be cheaper as they have less overhead and are not following the laws of their state.

Do many flippers use unlicensed personnel? Of course they do, but they are taking on inherent risk, no way around that going down that road.

As a secondary option, you can act as your own GC, hire laborers, put said laborers on payroll with payroll tax and worker’s compensation insurance and you are legit. Do keep in mind that some municipalities require licensing for specific trades. As an example, as an owner builder in Los Angeles, you can’t pull an owner builder permit for a new electrical panel upgrade but you can certainly pull for full gut kitchen and bath remodel, etc.

So check you state and local municipality rules and regs. If licensing is required when hiring, you may want to go down that road unless you are willing to accept some major risks.