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What Real Estate Investors Should Know About the Certificate of Occupancy

Mar 31, 2020 by Marc Rapport

A certificate of occupancy (CO) is an exercise in bureaucracy that can both annoy and protect investors and owner-occupied homebuyers, especially when it comes to multifamily, new construction, and converted use.

The annoying part is satisfying possibly picky government-employed or contracted inspectors that a structure is safe, sound, and ready for human occupation. The protection part is that doing so ensures that the place can be legally sold, bought, occupied by the owner, and/or rented.

Since earning a CO ensures that a structure has passed specific inspections, including for fire safety, electrical wiring, plumbing, and structural integrity, not one person is likely to have all those licensed skill sets. Multiple inspections are often involved, including by fire marshals, electricians, plumbers, city engineers, or more, depending on the scope of the project.

Rules vary from jurisdiction to jurisdiction, and lenders also will have their own rules about when they'll fork over the financing during different phases of a project's journey, including some that may require a temporary certificate of occupancy or a certificate of substantial completion.

That's not to downplay the final certificate's importance. After all, the CO is the grand finale for the paperwork and processes that typically begin with zoning-approved permits and ideally end with the moving van at the front door.

Indeed, delays and distractions in getting one in hand have delayed many a good plan. And ignoring them altogether can end up in unbudgeted expenses, like fines and delay-related financing and construction costs.

Plus, if you don't have one, you might not be able to sell a property or even legally collect rent, as noted by Brick Underground, a New York City real estate news and information site.

The CO nitty gritty

The CO can come with different names depending on the issuer. Use and occupancy certificate is another example of a widely used title for the same thing. Another example is in Detroit, where it's called a certificate of compliance and is required to get a certificate of registration to rent the property, if that's the plan.

By any name, a certificate of occupancy is required by most local governments and does just that: It certifies that a building can be occupied. Reasons for needing one can include:

  • New construction.
  • New owners for an existing property.
  • Conversion of use; e.g., an old warehouse converted into an apartment building.

Many jurisdictions have multiple steps required to earn the CO, and it's advisable that stakeholders begin the process as soon as possible, ideally when the project is still on the drawing board.

To help your research, Seattle-based lender Assets America, which provides commercial loans of $5 million to $500 million nationwide, provides links to the governmental CO providers in 14 major U.S. markets on this page.

And here's what the CO overseer of one of the largest of all American markets, the Los Angeles Department of Building and Safety, provides in the way of online information, applications, and steps for following the process as it moves forward -- or not.

Finally, here's a good example of the requirements from the city government where I live in Columbia, South Carolina:


The Building Official shall issue a Certificate of Occupancy (CO) stating the nature of the occupancy permitted, the number of persons for each floor when limited by law, and the allowable load per square foot for each floor in accordance with the provisions of the International Building Code. The CO may be issued only upon satisfactory completion of construction of a building or structure and installation of electrical, gas, mechanical, and plumbing systems in accordance with the technical codes, reviewed plans and specifications, and after the final inspection. The Building Inspector must submit the Inspection Record to the Building Official prior to processing the Certificate of Occupancy.

That's just one example. If you're considering building a new house or multifamily structure or buying an existing one, be sure to check on that all-important CO. They exist to protect you, your potential investment, and the neighborhood and community where you may soon be putting your money.

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