Flipping That House in Oregon – Big Profits Or Big Headaches?
Flipping, the real estate investment vehicle in which you purchase 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 a big business. I encourage my protégées to buy and sell for a profit without getting into the rehab business if their goal is to be an investor.
In Oregon you need to be careful how you proceed with a flip. If you buy a house and sell it without doing work on it you will not butt heads with the state construction contractors board (CCB). But be careful. If you think you can buy a house, remodel it, and then sell it, you can – if you have a general contractors license or a developers license. In other words, it’s regulated by the state. The purpose is to offer some semblance of protection to the consumer.
The stated mission of the CCB is:
“The Construction Contractors Board protects the public’s interest relating to improvements to real property. The Board regulates construction contractors and promotes a competitive business environment through education, contractor licensing, dispute resolution, and law enforcement.”
A general contracting license with allow you to do the work yourself on a house you plan to buy, fix up, and sell. A developers license will allow you to buy, hire contractors to do the rehab, and sell.
Who needs to be licensed?
According the CCB:
Oregon law requires anyone who works for compensation in any construction activity involving improvements to real property to be licensed with the Oregon Construction 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 dwelling installations, land development and most other construction and repair services.
A CCB license is also required for:
*those who purchase homes with the intent to fix them up and resell them, even if they do not perform the work themselves.
*material suppliers that receive compensation for installing or arranging the installation of the materials.
It’s not difficult to meet the requirements for a contractor or developer license. You simply take a short course that costs around $200 and you learn about OSHA, lien laws, and such – there’s very little in it about how to be carpenter, etc. You then take a test which adds an additional $50 to $100. The test is designed, like most state tests, to be passed so the state can collect fees. You can get through it. When I was first licensed all I needed was a bond and liability insurance, which cost about $125 if I remember correctly, and $50 for the state license, and I was a contractor – no course to take and no test.
The hard part of the process now is securing liability insurance you can afford. My insurance broker, Bob Gorham at Century Insurance in Bend (541-382-4211), has done a good job for me in the past. The insurance part of the equation is tough but you have to obtain it in order to comply with the state regulations.
Who does not need to have a license to work on a house?
The July issue of the Construction Contractors Board Bulletin says the answer to that question is:
1. A person who works on their own house
2. A person who furnishes the materials, supplies or equipment and does not for compensations, install or arrange to have them installed.
3. An owner who arranges for the work to be done by a licensed contractor. But this exemption does not apply to a person who in the pursuit of an independent business, does the work themselves or arranges for the work with the intent of offering the structure for sale before, upon or after completion. It is considered prima facie evidence that it was the intent to offer the structure for sale if the owner does not occupy the structure after completion.
4. A person who performs work on property they own even if they do not live there. And an owner’s employee can perform work.
5. A real estate licensee who performs 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. Their web address is http://www.oregon.gov/ccb.