Codes and Permit Problems that Experienced Real Estate Investors Run Into

We are talking about codes and permits at the May MAREI meeting and many new investors think – NOT SEXY.

I mean, come on, Codes and Permits?  REALLY??

But speaking at an experienced investor who has rehabbed ALOT of houses, knowing the rules has saved us time and money and could have saved a lot of other people.

Issue 1:  Permits for Furance and Air

Let’s talk about our last rehab.  We are actually closing on this one to our buyer today.

It was in Grandview and it needed just a little bit of work.  So we had the little bit of work done, then we had a little bit more, then a little bit more and then we did the buyer inspections and we did a few more.  So while this is not a codes issue, it would have been helpful to do a complete walk through, set up a compete scope of work and then we could have sent our contractors over there once, saving them time and us money.  Rehabbing one project at a time costs everyone.

But on this house we had a mess with electrical wires and and out dated box and we needed the meter moved on the house.  This requires a licensed electrician to go to the city to get a permit for the work which was easy and done quickly.  Next it required the electric company to come disconnect from the meter and attached to a temporary systed so the electrician can move everything and not electrocute himeslf and burn down the house in the process.  However the electric company lost the order and no one noticed or checked up on them for 2 weeks (lost time is lost money).  So we had to order the electric company again and the finally came.  The electrician did his work, called the city codes inspector to come inpsect his work as required.  While inspecting the codes inspector noticed a fairly new furnace and checked to see that we had pulled a permit and we had not, probably because the previous owner had put in in several years ago.  So problem.

The Grandview City Code inspector was not going to sign off on the electrical work and let us move forward until we had a permit on the furnace.  Luckily for us we were able to see the sticker on the system and call the company who had installed everything.  They were able to look it all up, go to the city and get a permit and then we could have the codes inspector back AGAIN to now inspect our electrical work and the 3 year old furnace.  That got everything back on track, but it cost us another wasted week of time, and we learned something, HVAC work in Grandview requires a permit.  So now we need to put on our checklist when ever we need a new furance or air to check with the city and the contractor to make sure we have a permit if needed.

Issue 2:  Layers of Roofing

This is a deal we did way back in 2008 and if the rehabber we purchased this deal from would have known what they were doing, they could have had an awesome rehab flip.  As it was, they lost money and then gave up and sold to us.  The investors had bought a cute little house in Waldo, well not very cute as it was a very poor layout and had a lot of issues and was not overly attractive and there was not much you could do about it.  Not what we would typically buy to flip, but we were getting it cheap enough so we though we would try.

Note the first investors had put a brand new Timberline roof on the home at a cost of at least $6,000.  However, their roofer cut corners and put it on over the old roof and several other old roofs and the roof had too many layers of roofing that was probably against code and definitly no insurance company for any home owner was going to insure the room.  So the first thing we did after buying this house . . . tear off the brand new $6,000 roof and all the other layers.  We put in a lot of new decking wood and then we put on a brand new Timberline roof.  Total cost to do it right $8,000.  Now I can’t quite say that knowing this code would have helped this newbie investor sell and make money on this rehab as there were other issues, but at least he would not have had wasted $6,000 on a roof that went straight into a landfil.

Issue 3:  Heating and Air not in some rooms.

This is the same house as in Issue 2 above.  It was an old house and back in the day, they would often build a house with bedroom or two on the 2nd floor with a floor grate beteen a 1st floor room and a 2nd floor room for heating and since there was no cooling, it kind of sort of worked.  I have slepted in a room like this once upon a time in the winter and if I had not been in a heated water bed, I would have almost froze todeath.

Anyway, this house had a room or two like that with no heat and no ac.  And it’s tough to sell a house that has no heating or air condition in bedrooms in Kansas City.  Our options were to do some sort of window or wall unit AC and put in baseboard heat.  Or to research with our HVAC guy a way to put in duct work to bring in heat and air and to then find a way to put in a cold air return so the heat and air can get out.  This house was fairly easy to get heat and air in, but with out a cold air return, it was not going to work very well.  So we had to get creative and steal space out of closets and hallways and then build walls around all the new duct work.

Issue 4:  Do I Need  a Permit

Quite often when we buy a house and have grand plans, we do like the folks on TV . . . we buy it with the grand plans and have a good handle on what it would cost to do the grand plans.  However, we don’t check in with the city to see what kind of permits are needed to do the work and don’t see all the rules and regulations needed to meet the permit guide lines.  So maybe you have a contractor who is not licensed in the state or city where the house may be, then you have to go and hire a different contractor that may cost more because they took the time to get the proper licensing, there goes your rehab costs.  Or maybe you plan to add a room, or build a shed or something that requires submitting building plans.

On those TV shows I have seen the TV star plan to convert a car port into a garage, but the city codes would not allow it, so the poor homeowner got no garage.  I have seen them plan on remodling a huge room addition, only to find it was built with out a permit and would have to be taken off, plans sumitted and rebuilt . . all costing tens of $1000 extra in their rehab.  Which is fine if you are on TV because problems sell, but if its your own rehab, you don’t have room for an extra $10,000 or so in rehab costs that you had not planned.

I hope you will join me at the MAREI meeting in May when we are hosting, Robert Massey, a contractor who has renovated several houses for me, quite a few for other investors and several for himself.  He is a very experienced, licensed general contractor who knows is codes and his permits and he will be sharing the top 10 or so screw ups investors make when rehabbing.  We hope you can  join us.