Flipping That House In Oregon: Big Profits Or Big Headaches?
Flipping, the real estate investment vehicle where you buy a property below value and soon sell it for a profit, is a very good way to generate positive cash flow. Cash flow is important if you want to pay the bills and feed the family. Flipping has become big business. I encourage my protégés to buy and sell for profit without going into the rehab business if their goal is to be an investor.
In Oregon, you need to be careful how you proceed with a turn. If you buy a home and sell it without working on it, you won’t be up against the state building contractors board (CCB). But be careful. If you think you can buy a home, remodel it, and then sell it, you can, if you have a general contractor license or a developer license. In other words, it is regulated by the state. The purpose is to offer a semblance of consumer protection.
The declared mission of the CCB is:
“The Building Contractors Board protects the interests of the public related to real estate improvements. The Board regulates construction contractors and promotes a competitive business environment through education, licensing of contractors, dispute resolution and law enforcement. “
A general contract license allows you to do the work yourself on a home that you plan to buy, fix, and sell. A developer license will allow you to buy, hire contractors to do the rehabilitation, and sell.
Who Needs a License?
According to the CCB:
Oregon law requires that anyone working for compensation in any construction activity involving improvements to real property be licensed by the Oregon Building Contractors Board (CCB). This includes roofing, siding, painting, carpentry, concrete, on-site appliance repair, heating and air conditioning, home inspections, tree service, plumbing, electrical, floor covering, manufactured home installations, land development, and the most other construction and repair services.
A CCB license is also required for:
* those who buy homes with the intention of repairing and reselling them, even if they don’t do the work themselves.
* Material suppliers who receive compensation for installing or arranging for the installation of the materials.
It is not difficult to meet the requirements for a contractor or developer license. Just take a short course that costs around $ 200 and learn about OSHA, liens laws, and more; there is very little about how to be a carpenter, etc. Then you run a test that adds an additional $ 50 to $ 100. The test is designed, like most state tests, to be passed so that the state can collect fees. You can get over it. When I first got licensed, all I needed was a surety bond and liability insurance, which was about $ 125 if I remember correctly, and $ 50 for the state license, and I was a contractor, with no course that take no exam.
The difficult part of the process now is obtaining liability insurance that you can afford. My insurance broker, Bob Gorham of Century Insurance in Bend (541-382-4211), has done a good job for me in the past. The insurance part of the equation is difficult, but you have to get it to meet state regulations.
Who doesn’t need to have a license to work in a home?
The July issue of the Construction Contractors Board Bulletin says the answer to that question is:
1. A person who works in his own home.
2. A person who provides the materials, supplies or equipment and does not make compensation, install or arrange to install them.
3. An owner who arranges for a licensed contractor to perform the work. But this exemption does not apply to a person who, in pursuit of an independent business, does the work himself or organizes the work with the intention of offering the structure for sale before, at the time, or after completion. It is considered prima facie evidence that it was the intention to offer the structure for sale if the owner does not occupy the structure after completion.
4. A person who performs work on property that he owns, even if he does not live there. And an owner’s employee can perform work.
5. A real estate licensee performing work on the structure that the real estate licensee manages under contract.
For more information on licensing, you can call the CCB at 503-378-4621. Its web address is http://www.oregon.gov/ccb.