Real estate investors often make their money by buying and selling houses quickly or flipping houses. If you want to flip houses for profit, you need to buy ‘run down’ houses for a price lower than the market value, fix them up, and sell them for a profit.
If you’re interested in real estate investing, you may be wondering if you need a contractor’s license to flip houses? Most houses you can buy for a low-enough price require some repairs or renovations. It makes sense to have a contractor’s license, right? The reality is that you may not need a contractor’s license at all, and it will depend on the project type and investor’s needs.
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What Does The Property Need?
First, it’s key to identify what the home requires in terms of renovations. What is it about the home that makes you think you can buy it for a cheap price and sell it high?
As a property investor, you’ll go through these steps whether or not you fix the home up personally. Once you buy a property, it’s your money that pays for the repairs even if it’s not your hands that do the work, which is why knowing your bottom line is so important.
Now, depending on where you live, you may or may not need a contractor’s license to flip houses, but it’s always a good idea to consider it. Here are some of the benefits of a real estate license:
The Benefits Of A Contractor’s License
1. You Can Skip The Middleman When Pulling Permits
Not all remodeling projects require permits, but some will, and these can slow you down. If you have to rely on professional licensed contractors to pull the permits for your project, it could delay the process significantly. They also charge a fee to pull the permit. Instead, you could pull the permits yourself, getting the work done faster while saving money.
2. You Can Spot What's Wrong With The Property Quickly
With the right experience, you can get a clear idea of what needs to be done on a property personally. You may do repairs yourself, saving you money, and increasing your profits by cutting out outside contractors. If you do need to hire out, however, you’ll know what you need and how to look for it.
You’ll also have the benefit of spotting better deals. With some trial and error, you’ll know what to look for in a fix and flip project yourself. Without having to pay an inspector, you’ll know the depth of a property’s issues; if you can manage them; and if the home is even worth flipping. This saves you both valuable money and time.
3. You Can Predict The Renovation Costs More Accurately
A good real estate investor knows not only how much a home should cost, but how much it will cost to renovate the home as a whole. This number plays a big role in your potential to earn good profits. You could pick up a property for a great price, but if the renovation work eats up your budget, the profit margin may be much smaller than you projected.
If you go through the training to get your real estate contractor license, you will improve your ability to predict the cost of renovations when executing a house flipping project. This can greatly improve the profitability of your house flipping business.
4. Fewer Liabilities To Contend With
When you don’t have to rely on outside help, there are fewer hands in the pot and fewer bodies to make mistakes. If you do have to hire out, the chances are that you’ll hire reputable professionals only because you know what to look for in the trades. This may lower your chances of dealing with shoddy work or other liabilities that go along with construction work.
5. You Can Diversify Your Income Streams
As a licensed contractor, not only can you do the work on the homes you buy, but you can work on other homes too. Diversifying your income so you’re not relying solely on home sales can stabilize your income.
Should You Get A Contractor’s License?
If your state doesn’t require it, is it still worth it to go through the licensing process? Getting a real estate contractor license can be a lengthy process, for which you must take many classes and go through plenty of training. On the other hand, it offers very distinct benefits.
If you have any desire to do renovation work yourself, whether to save money or to make sure the job’s done right, getting a real estate license will be beneficial to you. If you don’t want to do the work yourself or be involved in that aspect of fix and flip projects, then it may not be worth the time and effort. Gauge your interest in being a hands-on investor when making your decision.
In the end, you need to be honest about your real estate investing skill-set. If you are a hands on person with a good understanding of how to fix things, do construction work and follow all the legal requirements to renovate a house, it probably makes sense to pursue a contractors license.
However, if you are more of a keyboard warrior with the a firm grasp of the numbers and the ability to spot properties with potential, a contractors license probably isn’t the best target to aim for. Instead, finding good quality house flipping contractors is a perfectly valid house flipping strategy, provided you know all the financials of the deal and how to piece everything together to ensure a profitable house flip.