When are permits truly necessary in a BRRR?

Question

Hello BP,

Excuse me if this is redundant but I want to get this idea clear in my head.  I am looking at a property to BRRRR.  It is a SF, 3/2 @ 1500sqft, Wilmington, NC area. The property is a major rehab, already gutted to studs and floor joists. The current owner did all the gutting himself, and as far as the city/county knows the house is still in livable shape and is current on taxes/has no code violations.

For simplicity sake, lets presume I'm using all my own cash for the purchase and rehab, no bank requirements for general contractors, inspections for draws etc. Also, I would not do some large change like add a bathroom or an addition that would change the particulars on the tax record.

My question is, given that no government agency knows how bad the property currently is, are permits necessary?  As far as I can tell, the bank's appraiser will want to see before and after pictures that show that quality work was performed, but does that mean reviewing permits?  Is there a need to re-certify and get a certificate of occupancy?

Note: I'm not saying I would cut corners, do shoddy work or skip having work done by professionals, I am simply hoping to avoid government expense and red tape.  Certain big items, such as complete AC replacement, require a permit inspection in my county.

Thanks for any advice.

Sean McKenna · Answer

@Matthew Wilson The project is a major rehab. Enough said.  Yes, that requires a permit. It is in your best interest to require this from your GC. Your intention might not be to not cut corners.  But how do you really know that your contractors won’t be cutting corners.

In most jurisdictions that I have done work in.  Any project over 50% requires the house to be brought up to modern code.  Where this catches people off guard is with the modern energy code. New windows, doors, lots more insulation and spray foam in some areas.

On a project this major the word will get out.  All it takes is a dumpster or a pile of construction debris in the yard to trigger a surprise visit.

What most people have said is that if caught you will have to pay fines and re-do everything.  While yes, that’s true.  But the worst part is the stop work order. You will end up with a major delay. Tied up in paperwork and some towns make you explain yourself to the planning and zoning board in an open hearing.   Then after all that, when you do follow all the rules they put in place and then you call for inspection.  AND crickets.

They will make an example out of you because you should have known better.

Joseph Cacciapaglia · Answer

You should always get permits. If a code enforcer happens to get wind of your project, from a nosy neighbor or just driving by and seeing contractors going in and out, you could have to start over. I've actually experienced this. We had an almost complete project, that had been down to the studs. The code enforcer was doing some random inspection in the neighborhood, and stopped and asked one of the workers heading into the house what they were doing. They made open everything up, because it was clear there was new electrical and plumbing. I know this sounds like a slim chance, but when I've told this story to others, I've heard of it happening a lot. Also, I do not trust contractors that are willing to work without permits.

Matt W. · Answer

Thanks for all the detailed replies.  Sounds like the possible benefits are far outweighed by the potential risks and I will definitely get the permits the first time!

Pat L. · Answer

We did a major rehab & got the all the required permits. When we sold it the buyers attorney wanted to see ALL the signed off inspected permits or NO DEAL. Another investor friend decided to go without permits, got caught & had to tear out a lot of plumbing/electrical work.

Davido Davido · Answer

@Matthew Wilson,  You have received solid advice above.   Here are some additional thoughts."My question is, given that no government agency knows how bad the property currently is, are permits necessary?"

Depends on how you define "necessary".  Permits are legally required (in most jurisdictions), but it is certainly physically possible to restore the home completely without any permit.  If desired, you could even rebuild the home to a condition better and safer than the code requires, again without getting any permits.  Most people use the term "necessary" synonymously with legal. For simplicity sake, lets presume I'm using all my own cash for the purchase and rehab, no bank requirements for general contractors, inspections for draws etc. ... As far as I can tell, the bank's appraiser will want to see and after pictures that show that quality work was performed, but does that mean reviewing permits?

If a bank is loaning money for the rehab, they will require permits to be acquired and complied with.  If you are referring to obtaining a refinance loan after your rehab, then your biggest concern would be that the bank could require an building inspection.  A review of permits would be unusual, unless the inspector found an obvious problem, like 4 bedrooms and two baths in a home that county records show to be a 2/1.

...(A)s far as the city/county knows the house is still in livable shape and is current on taxes/has no code violations. ...  Is there a need to re-certify and get a certificate of occupancy?

Not likely if the outside walls and "foot print" of the home remain unchanged.   Some, but not all, jurisdictions place a % limit on the amount of rehab that can be done.  More than XX% of rehab is considered creating a new building and could require a new certificate of occupancy.   That is almost unheard of if the outside walls all remain unchanged.

Adam Leitman Bailey · Answer

You should obtain any permits you think you may need and then some. If you're not sure which you need its smart to consult with an attorney to prevent any unwanted costs in the future.

Joe Splitrock · Answer

@Matthew Wilson keep in mind that many inspections result in changes to comply with code. Even people who do quality work miss things. (Even inspectors miss things.) Part of doing a quality job is getting it inspected.

The bank appraiser will pull permits and use it as documentation that helps support value. Even buyers and buyers inspectors will pull permits. Or as others mentioned, nosy neighbors will call code enforcement. You don't want to get on the cities bad side if you plan to run a business.

Matt W. · Answer

Thanks everyone for your advice,

Sounds like a unanimous verdict to get permits, so that's what I'll do!

Corby Goade · Answer

Get the permits no matter what. I've seen both sides of this coin before and I've never regretted getting a permit, but I definitely have regretted NOT getting the permit, quality work or not.

If you ever plan to sell or leverage the property, the lack of permits will bite you every single time. Even if you don't think you will sell or leverage ever- you don't know where you will be in five or ten years. The cost and effort to do it now will far outweigh the headache you will have when you need to get those permits 10 years from now on the work you are doing today.

Michael Noto · Answer

Not worth the risk not getting permits especially if you will be getting the work done by licensed professionals and above board.

When are permits truly necessary in a BRRR?

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