Should I Get A Permit When Doing A Rehab?
From Tom Nardone, Millionaire Mailman …
So, should you get a rehab permit? This is a hard question to answer!
I would have to say if permits are required for work you are doing on a rehab, its best to get them.
An investor friend who has been in the rehab business for 25 years is finding this out the hard way…
He rehabbed a house that he bought for $90,000. The house needed about 60K in rehab work. When he was done making the house absolutely beautiful, his plan was to sell it at a price of 199K.
Not a bad pay day to make 50 Gs!
But when he finally finished the house and got a buyer on the hook for the purchase – the problems began. The buyer obviously saw that the entire house had been remodeled and went down to the building department to check the permit history for the roof, the electrical, the plumbing, the cabinetry, the new air conditioning, windows, doors, etc.
Can you guess what he found?
There were NO permits pulled whatsoever… zippo.
When the buyer expressed his concern to the building department, they were onto my investor friend like buzzards on road kill. Learn from his mistakes!
Building Departments Are Pissed Off
In the hardest-hit cities where the real estate crash took its toll, many hedge funds jumped into the market and started buying up houses by the thousands… and in doing so, hired work crews that, in many cases, were not licensed to do the trade they were doing when they rehabbed the houses.
I observed this going on a few years ago and was quite surprised when the big hedge funds made this decision to just move forward and do all the rehab they did without permits.
I know this firsthand, as a good friend of mine runs a rehab crew for one of the largest funds – of which I will NOT name names! You would know them if I mentioned them.
Anyway, a few years back, the building departments knew the real estate market was struggling, so at first, they really didn't press the issue because I think they wanted to see construction turn around – so they looked the other way.
In fact, there was so little construction going on during the “bust” years, that many building inspectors were actually laid off from their jobs. But as the construction started to come back, and the departments were starved for permit fees, they saw an opportunity to look up the hedge funds on the tax rolls to see all the property they had bought. It’s not too hard to find a fund that owns property numbering into the thousands, all titled in one name.
Then, the Building Departments sent inspectors out there to see if the houses the funds remodeled have new windows, doors, etc., and check the permit history each…
This created a “honey hole” of opportunity for the Building Departments in permits fees and penalties –enough to fill the city coffers full once again. If the Building Departments slapped all the permit, violation and penalty fees onto the big hedge funds, then surely they would pay because they have all that big Wall St. money. Right?
My friend who runs the crew for the big fund now tells me the hedge fund he works for is getting nailed left and right for non-permitted work with fines and penalties. Some of these fines can run up to $250 to $500 PER DAY!
So, What Should You Do?
My investor friend of 25 years got nailed because he bought his last 20 houses in the same name entity. (I want to say here – that you should consult with the attorney on your power team about asset protection and privacy… and ask him for the best method to stay less visible on public records.)
But overall, it's best to buy each property in a separate name, entity, land trust, or some way that you make each house stand alone, so one grenade doesn't get all your soldiers, so to speak.
Have each house stand alone, so if you are caught with a violation of some sort, your assets are kept as private as possible.
It’s also important to know that you don't have to be a permit violator to get caught without a permit...
I have a house I bought 15 years ago that I rent, and the city said to me the previous owner had never pulled a permit for the installation of the driveway… so I had to have the driveway replaced, just because I didn't check the permit history when I bought the house.
Somewhere there is a fine line here…
So, my advice is to get the permits when required, check the permits when buying, as it’s always “Buyer Beware” when buying. Sell houses in “as-is” condition and consult with the attorney on your power team for the best way to protect your assets from the view of others.
Enjoy the Journey,
Share Some Permit Talk
Have you a bad situation arise because you didn’t get a permit or maybe you were saved because you did? Share in the comments section below.