That is the question every rehabber asks himself/herself.  Many cities and states don’t legally require that all contractors be licensed (though most require that plumbers, electricians, HVAC contractors, and the like are). But even in places where a license IS required, there are plenty of unlicensed folks who are happy to do jobs ‘under the table’.

The natural thinking among real estate investors is that we can save money by not using licensed folks: that if I use a licensed contractor the job is going to cost me more money.  

Yes, I have asked that question myself.  And I have tried to cut corners by hiring the “handyman” who is not licensed.  Here are a few of the results I have seen.

1. On an early project I discovered the contractor who was doing excellent work, had a cooler on the job.  I didn’t think much about that until I noticed beer cans on the job site.  So, I dropped in one day unexpectedly and discovered my contractor was drinking beer on the job.  When questioned, he replied, “I’m doing fine.  I am perfectly OK to do the job while drinking.  To prove it, I can trim my thumb nail with this power miter saw and will not cut myself.  Here, let me show you.”  He didn’t get the chance to “show me” because I immediately fired him.  Just think what my liability would have been if he had actually tried that!
2. Another time I bought a house that had lights in the living room, kitchen and laundry room that were operated by a pull chain in the middle of the light.  I told the contractor to replace those lights and to put in wall switches.  When I went back to the house, I saw the new lights.  They were beautiful.  But I couldn’t find the wall switches.  I discovered the contractor didn’t install any switches.  The lights could only be turned on and off at the breaker panel.  This same contractor provided me with several more examples:
3. I asked him to install a new outlet in the kitchen.  When I checked it, I discovered it didn’t work.  The contractor actually said, “You didn’t say it had to work, that will cost extra.”
4. This same contractor installed single pole switches where three-way switches were needed.
5. And he replaced duplex outlets with three-prong outlets with no ground attached and no GFCI.  Note:  It is illegal to replace duplex outlets that have no ground or are not protected with a GFCI.  Think what my liability would have been if a child had been injured by using one of those outlets!  That contractor was also fired!
6. I once had a contractor post a building permit in the window to keep anyone from questioning whether he had gotten a permit or not.  However, the permit he posted was not for my job.  It was for a different job he had done sometime before.

So, to answer the original question:  Do I have to use a Licensed Contractor?  I think for my part, the answer is a definite yes!