What Are Building Permits?
A building permit is an official authorization issued by a local government agency that allows construction, renovation, or demolition work to proceed on a property. Permits ensure that work complies with local building codes, zoning regulations, fire safety requirements, and structural standards. For real estate investors, understanding permits is essential for renovation projects and for evaluating properties that may have unpermitted work.
When permits are required
Generally required for: structural changes (walls, roof, foundation), electrical work, plumbing work, HVAC installation or replacement, additions and new construction, converting garage or attic to living space, deck construction, and demolition.
Generally NOT required for: cosmetic changes (painting, flooring, countertops), cabinet replacement, minor repairs using same materials, landscaping, and fencing under a certain height (varies by jurisdiction).
Unpermitted work
Properties with unpermitted work present both opportunity and risk for investors. Unpermitted additions, conversions, or renovations may not be counted in the property's official square footage, which can affect ARV calculations and appraisals. Worse, a buyer's lender or insurance company may require that unpermitted work be brought into compliance, which can be expensive (potentially requiring demolition and rebuilding to current code).
Permits and flipping
Flippers should pull permits for any work that requires them. Skipping permits to save time and money creates liability: if something goes wrong (fire, structural failure) and the work was unpermitted, your insurance may not cover it. When you sell, the buyer's inspector or appraiser may identify unpermitted work, creating a deal issue at the worst possible time.
For wholesalers
When evaluating a deal, check the property's permit history. Open permits (work started but never inspected and closed) are a red flag that can complicate closing. Extensive unpermitted work may reduce the property's value or limit the buyer pool to cash investors who will accept the risk.