Is a General contracting license needed to flip/rehab in AZ

Rehabbing & House Flipping
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Is a General contracting license needed to flip/rehab in AZ

Joey Chrisman
Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes

Hello,

First time flipper here.   I am interested in buying property and rehabbing it/changing it drastically from what it is now.  In Scottsdale most houses can't really be flipped profitably say by just adding some lipstick now.  Basically this project will require permits being pulled and an extensive rehab.  My question is how do most flippers/rehabbers in AZ operate.  I'M guessing many people, especially first time flippers do not have general contracting licenses but according to AZ law it states that if a house is built to be sold within 1 year of it being completed the owner/builder needs to be a registered contractor or hire one otherwise it's a class 1 misdemeanor.  It seems like there is a lot more liability than most people see when dealing with construction and flipping places.  Especially if say one of subs who may not be licensed or have insurances gets hurt on your flip.  I guess I'm just confused because on here because many people say to not hire general contractors  as you can figure out the process your self.   Without a general contractor license and not holding the insurances needed you run a lot of liability risks that nobody tries to sue you and your business.   It seems for any extensive renovation that needs permits pulled you need to either be a general contractor or hire one and the sub contractors that are used in building the project need to be reported to the city.    Anyone on here have experience in AZ doing extensive rehabs and how the law works for remodels?    

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Paul Hansen
Investor · Phoenix, AZ · Member since 2017 · 21 posts · 10 votes
3y

In Arizona, if you are not adding structures or appurtenances and you are only improving upon existing structures and appurtenances, then you can use licensed specialty sub-contractors. Unless you are adding structures and appurtenances, you do not have to use a GC to remain lawful. If you need permits, unless it is for plumbing or electrical, you will probably need a GC to pull those.

Otherwise, you can "project manage" the flip and line up licensed specialty subs to complete work (carpenters, roofers, floor installers, painters, etc.), and this is within the AZ law based on my interpretation (I am not a lawyer). To claim the exemption from AZ's contractor license law as an owner/developer, the statute states that licensing info must be included in the sales contract, and I have seen addendums to contracts that include this information. With that said, as a Realtor and and Investor, I haven't seen these addendums often. That doesn't mean it is right. You don't know what you don't know, and ignorance is sometimes bliss until you get caught or placed in a position of liability.

Here is the snippet from AZ Statute 32 regarding who is exempt from being licensed. Here is a link to the whole statute (see Article 2, Section 6): AZ ROC Title 32

"Owners of property who are acting as developers and who build structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor licensed pursuant to this chapter and owners of property who are acting as developers, who improve structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor or specialty contractors licensed pursuant to this chapter. To qualify for the exemption under this paragraph, the licensed contractors’ names and license numbers must be included in all sales documents."

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    5y

    You seem to have answered your own question….hire a gc or try to become one. The problem with the latter is you have no idea which subs to use and which ones not to….which is the key to a successful job. 

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  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    5y

    Yeah I mean I have a few relationships with different subs from previous work I have done on my own house but becoming a contractor might cost just as much as hiring one and getting the insurances/tax/legal set up.  Not too mention the experience that a general contractor would bring over what say my knowledge is for dealing with permits and code.  You could always hire a bad general contractor or one who uses bad subs.  

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  • Ryan Swan
    Real Estate Agent · Phoenix, AZ · Member since 2012 · 640 posts · 457 votes
    5y

    Some flippers have a licensed GC they've worked with many times that maybe offers better pricing. That relationship maybe took a dozen or more deals. Other flippers will simply roll the dice and use a mix of licensed and unlicensed subs.

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  • Joey Chrisman
    OP
    Scottsdale, AZ · Member since 2008 · 24 posts · 18 votes
    5y

    Yeah I guess maybe I'm overthinking it and I wonder if they really enforce the statute all that much.  I guess I could say I'm building it for myself and when I am done sell it and if everything is done to code and permitted you likely won't have many issues.   probably what a lot of people do like you saying. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    5y
    Originally posted by @Joey Chrisman:

    Yeah I guess maybe I'm overthinking it and I wonder if they really enforce the statute all that much.  I guess I could say I'm building it for myself and when I am done sell it and if everything is done to code and permitted you likely won't have many issues.   probably what a lot of people do like you saying. 

    Areas that have these laws often place a deed restriction that you can’t sell within the year when you pull an owner occupant/builder permit.  

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  • Daniel SmythPro Member
    Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
    5y

    @Joey Chrisman

    Some areas require a permit to paint a house or to even replace a storm window or door.

    Usually a home owner can pull the permits.

    My county in Illinois will not allow a home owner to modify a septic system al all. This must be done by a state licensed and insured plumbing company.

    You may well be able to DO most of the work yourself, but since your renovations will be substantial, you might wish to use an area licensed and bonded contractor to pull those permits and deal with the inspectors.

    I would have coffee with a building inspector in your area and run some things by him.

    It's never a bad thing to

    [email protected]
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  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Joey Chrisman From what I think I know, if you do the work yourself (no subs or specialized trades) on your own property, no GC license is required. 

    If anyone does work on your property and that work exceeds $1k, they must be licensed/registered with the AZ ROC. 

    Reference the Arizona Registrar of Contractors website. 

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  • Paul Hansen
    Investor · Phoenix, AZ · Member since 2017 · 21 posts · 10 votes
    3y

    In Arizona, if you are not adding structures or appurtenances and you are only improving upon existing structures and appurtenances, then you can use licensed specialty sub-contractors. Unless you are adding structures and appurtenances, you do not have to use a GC to remain lawful. If you need permits, unless it is for plumbing or electrical, you will probably need a GC to pull those.

    Otherwise, you can "project manage" the flip and line up licensed specialty subs to complete work (carpenters, roofers, floor installers, painters, etc.), and this is within the AZ law based on my interpretation (I am not a lawyer). To claim the exemption from AZ's contractor license law as an owner/developer, the statute states that licensing info must be included in the sales contract, and I have seen addendums to contracts that include this information. With that said, as a Realtor and and Investor, I haven't seen these addendums often. That doesn't mean it is right. You don't know what you don't know, and ignorance is sometimes bliss until you get caught or placed in a position of liability.

    Here is the snippet from AZ Statute 32 regarding who is exempt from being licensed. Here is a link to the whole statute (see Article 2, Section 6): AZ ROC Title 32

    "Owners of property who are acting as developers and who build structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor licensed pursuant to this chapter and owners of property who are acting as developers, who improve structures or appurtenances to structures on their property for the purpose of sale or rent and who contract for such a project with a general contractor or specialty contractors licensed pursuant to this chapter. To qualify for the exemption under this paragraph, the licensed contractors’ names and license numbers must be included in all sales documents."

    1Reply
  • Marty Boardman
    Real Estate Investor and Instructor · Gilbert, AZ · Member since 2010 · 303 posts · 332 votes
    3y

    @Paul Hansen is correct. I've fixed and flipped hundreds of houses in Arizona. Unless you're adding on to an existing structure you don't need a GC, and in most cases permits are not required.

    I have a project manager run my flips, and pay a GC a fee if we need a permit pulled for an addition or teardown.

    Last week I started a total gut job on a house in Chandler, including removing a wall between the family room and kitchen. My rough/finish carpenter is doing the work and no permit was required.

    0Reply
  • Chad McMahan
    Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes
    3y
    Quote from @Joey Chrisman:

    Hello,

    First time flipper here.   I am interested in buying property and rehabbing it/changing it drastically from what it is now.  In Scottsdale most houses can't really be flipped profitably say by just adding some lipstick now.  Basically this project will require permits being pulled and an extensive rehab.  My question is how do most flippers/rehabbers in AZ operate.  I'M guessing many people, especially first time flippers do not have general contracting licenses but according to AZ law it states that if a house is built to be sold within 1 year of it being completed the owner/builder needs to be a registered contractor or hire one otherwise it's a class 1 misdemeanor.  It seems like there is a lot more liability than most people see when dealing with construction and flipping places.  Especially if say one of subs who may not be licensed or have insurances gets hurt on your flip.  I guess I'm just confused because on here because many people say to not hire general contractors  as you can figure out the process your self.   Without a general contractor license and not holding the insurances needed you run a lot of liability risks that nobody tries to sue you and your business.   It seems for any extensive renovation that needs permits pulled you need to either be a general contractor or hire one and the sub contractors that are used in building the project need to be reported to the city.    Anyone on here have experience in AZ doing extensive rehabs and how the law works for remodels?    

    Based on the current market and what is likely coming over the next 1-2 years, I highly recommend flipping contain a 1-2 year exit, with a tenant, rather than selling ASAP. Money can be made flipping ASAP right now- I have several clients repeatedly flipping and clearing 20%-25% profit per flip, but you HAVE to have a property that really pops when it goes back on market. It also helps a lot of it's STR friendly and desirable.
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