I like to fix and flip houses. I also like to save money, which is why I’m always conflicted when it comes to deciding whether or not to use licensed or unlicensed trades for my rehab projects. There are pros and cons to both.
Licensed tradespeople are required to carry insurance, which protects me, the property owner. If a licensed plumber burns my house down with a blowtorch then his insurance covers the damages. If a licensed painter falls off his ladder and gets hurt then his insurance will cover the medical bills.
Those are the pros for using a licensed trade. The biggest con is the cost. Licensed trades usually charge more for their services because they have the costs associated with being licensed, as well as the insurance expense.
Unlicensed trades, on the other hand, have no insurance costs so they can charge much less for the same quality of work. However, if an unlicensed roofer breaks his back falling off a ladder at your house then I could be on the hook for the hospital bill.
It’s important to note that just because a contractor is licensed doesn’t mean he or she is good, and just because a contractor is unlicensed doesn’t mean he or she is bad. Over the years I’ve employed both in my fix and flip business and have settled on this criteria when deciding whether or not a trade should be licensed:
Trades that must have a License:
- HVAC (air conditioning and heating contractors)
- Painters (it depends)
Trades where a License is Optional:
- General handyman work
- Flooring (carpet, tile, hardwood)
- Pool maintenance and repair
- Landscaping maintenance and repair
- Painting (it depends)
As you likely figured out, for the big, mechanical stuff I like to use licensed trades. Many investors I know also insist on using licensed painters. Why? Painters use tall ladders and are prone to fall off of them from time to time. Currently, the painter I use is unlicensed. However, he’s fast, inexpensive, reliable and good so that trumps the risk exposure. I’ll take my chances on any ladder mishaps.
The licensed vs. unlicensed trade question all boils down to comfort level. Are you willing to pay more for piece of mind or would you rather roll the dice on using an unlicensed, uninsured trade that saves you thousands on the project?
If you’re like me you’ll probably settle on using a combination of both.