Are you a Fix and Flipper in AZ or a Contractor? Difference?

[Jarrid Kopras]

Are you a fix and flipper in the state of Arizona or are you a General Contractor? What’s the difference?

It turns out that a “Fix and flipper” is someone that is engaging in something called “contracting without a license”. The goal is to use specific criteria to find an investable property to buy low, possibly repair or update and sell at a profit. Not typically a primary residence but an second home or third investment property.

A General Contractor on the other hand is someone that is required by law in the state of Arizona to be hired to perform work on an investment property that the fix and flipper has acquired. They are licensed by the state of Arizona in which they have to meet certain requirements such as experience that is verifiable, and pass an exam. There are different types of general contractor, you can look them up at www.azroc.gov.

Why is the distinction important?. The state and federal government look at investment properties the way that they are correctly structured which is a business not just an asset. It is considered “inventory”. It is taxable in multiple different ways, most investors understand the tax implications I think, but they don’t seem to know the law and why it exists.  The primary reason the state requires you to use a licensed general contractor is to help absolve the municipalities and state from liability.  The city and state don’t want just anybody performing repairs on homes. It’s a serious safety issue. Imagine blowing out a wall and not having a structural engineer sign off on it, no permit and no inspection inspection to make sure that it is safe and done according to the approved drawings. Think of the liability the selling party would have if the home came crashing down. General contractors are qualified professionals licensed by the state and insured and bonded for liability for construction related matters. 

If you’ve read this far and you have further questions, fire away, I will do my best to answer them. 

Eg, what happens if an unlicensed contractor did a bad job and won’t fix it but they have my money? What can I do?

Answer? Not much. In most cases you have a phone number, maybe an email. But no address to go to, no way to find them. You can’t sue them because that exposes both of you to “contracting without a license”. It also would indicate you aided and abetted an unlicensed contractor. (Yes, it’s a real thing). Unlicensed contractors won’t have construction liability insurance, on the application your ROC license number is required to obtain insurance or a bond. Arizona takes this seriously. Lots of fraud out there.

What if I have a grievance with a licensed contractor? What can I do?

Answer; you have multiple options. First is to file a complaint with the registrar of contractors to try and solve it through their system. Free to the public. They have a recovery fund which can pay up to $30,000 if memory serves, to make you whole. Or you can litigate in court by filing a lawsuit.