Many rehabbers don't like having to pay the city for permits so that they can work on their rehab projects. We investors don't like having to add the extra cost to our budget. And for many of us it seems like a waste of money having to spend it on something that isn't really needed; basically it seems like once again it's simply the government with their hands out.
The other problem is that now you have to deal with some city inspector who could be a pain in the ass; showing attitude, causing delays, even stopping the job altogether. Who wants that?
Although I understand the frustration there are other things to consider.
The contractor may take short cuts, the work may not be up to code, and it may end up being a hazard for your buyer down the road.
For most rehabbers (who are not contracting professionals), it's a good idea to have another contracting professional keep your contractor accountable. This will insure that the job is being done right and you won't have anything that'll come back to haunt you later.
If you get caught doing work without a permit, then you'll end up not only paying for the permits but also the penalties and fines involved.
Of course you always want to have permit when adding square footage, or adding bedrooms and bathrooms. This will allow you to sell the home showing the additions.
With all of that in mind, my suggestion is to just pay for the permits. Not everything you do needs a permit, so check with your local city to find out when permits are needed and what they cost. Then factor in the cost to your budget depending on what is needed to rehab that specific property.