BiggerPockets

I have no rehab/construction experience. I dont know what jobs cost what. Im pretty much a newbie!

I think I've come up to what I think may be a good opportunity for a rehab flip. What is the best way for someone in my situation to evaluate what repairs are needed and how much they would cost (ballpark), before I decide to buy this house?

Home inspectors dont do this sort of work, do they? Do I hire a GC to do it? My biggest fear is getting in over my head from underestimating repairs and LOSING money. And the sh*t I would catch from my wife for doing so.

Thanks.

Their is a difference between what "needs" to be done and what you want to have done.

As you don't have experience yet, why don't you hire a home inspector to run through the property - the inspection report will tell you what "needs" to be done to sell the home.

That becomes the basis for your discussion with the GC. i.e let's say the inspector tells you the cabinets around the kitchen sink show sign of water damage/rot and they need to be repaired - then you can discuss with your GC the costs to repair what is in place vs. replacing the kitchen cabinets with a newer more marketable kitchen. Would the increase in sales price (or speed in turning the property) with new kitchen cabinets justify the cost differential.

Effectively, you are using the report as a base line - it helps you appear more informed to the GC and also stops him taking advantage (especaially if you don't have an established relationship). As J Scott mentions, you will get the feel for it pretty quickly, this just helps you get a head start.

Warren Buffett agree's with your wife "Rule #1 Don't lose money."

TTFN,

Greg

Do you have any investor friends that could walk you thru the deal? Maybe offer them a cut of the profits if they can guide you thru the whole rehab. An inspection is a must, after a few deals, you will see why. More than likely you will go over budget, its normal, a inspector and investor-friend will greatly reduce the potential budget overages.

Getting burned by contractors is much more probable, but thats another topic. A simple suggestion to prevent getting burned by the subs/gc/workers is not give a deposit on labor and do purchase materials yourself. If a contractor needs money up front, i dont work with them. all subs get paid upon completion. GC (contractor or crew) get paid 25% and 50% when they complete 25% and 50% of work, the final 50% is paid upon completion.

Nick
I can write a book about "doo doo" from the wife when you lose her money. I was guilty on my first one of not protecting the profit. If I had of stayed with my original scope, it would have been a lot better. We got caught up in the projects we would like to do as mentioned before. Plus, I wanted to educate myself and my son how to do unbudgeted drywall.
Don

Originally posted by Nick Dunin

Thanks for the relies guys. Jeff, after using a GC after a couple flips what would you recomend? Hiring specialists to do each particular job?

Yup...

I used a GC on my first two rehabs, and then started bring in sub-contractors and managing them myself. By my fourth rehab, I had hired a full time project manager whose job is to hire, manage and deal with the day-to-day issues of the contractors.

To start, you want to have a good:

- Plumber
- Electrician
- HVAC Guy
- Painter (who can also do siding, drywall, etc)
- Carpenter

You'll also need a roofer, flooring guy(s), cabinet guy, etc, but you can go with the bigger companies for that stuff until you meet the right people.

In my opinion, the most important guy on your contractor team is probably your handyman or generalist. He can probably do much of the finish electrical, finish plumbing, basic HVAC, basic carpentry, etc, for about a quarter the price of the specialists.

For example, a plumber will probably charge $60-70 to install a toilet...a good handyman will do it for $20-25.

That said, make sure the specialists are licensed, and make sure you keep your unlicensed handyman away from anything that requires a specialty permit.

How much more expensive are general contractors from just hiring a seperate plumber, electrician, etc myself. Is there a "ballpark" % markup.

A GC will generally mark up the labor cost anywhere from 10-20%, depending on how much business you give him and how much of the work he does himself.

Originally posted by Nick Dunin

Originally posted by Jeff B.

I agree with using a GC on your first couple of flips

Thanks for the relies guys. Jeff, after using a GC after a couple flips what would you recomend? Hiring specialists to do each particular job?

How much more expensive are general contractors from just hiring a seperate plumber, electrician, etc myself. Is there a "ballpark" % markup.

In addition to being a RE investor, I am also a GC. Profit margins for GC's vary based on how busy they are and how hungry they are to work. If things are slow, the margin will be lower. I can tell you that I personally won't do a job unless I'm making 20%-25% at a minimum. That sounds high (and it is) but when you consider CA is an expensive state to work in, you'll see that is about the norm for most out here who are worth their salt.

For your first couple of flips, I would highly recommend staying away from anything that requires structural work and refrain from removing walls and redesigning floor plans. Stick to cosmetics. Most GC's estimate using per sq ft numbers. For example, interior paint runs X per sq ft. based on the Sq footage of the house. Cabinets are priced by linear foot. Tile and granite are priced by sq ft and so is flooring (carpet is done by the sq yard). About the only things that aren't priced by the foot are doors, windows, appliances, and fixtures (these you can get an idea on by looking online at Home Depot or Lowe's.

To get an idea of this, you could pay three different GC's to come out to your own house and give you prices on to replace/repair virtually all your interiors. This will give you a range to work with. You could also have tradesman give you prices for various items to see what the markups are. The AIA also puts out a book every year that gives a price breakdown of every single aspect of construction. The book is published regionally and can be a good baseline tool to work with. Don't rely on it exclusively though.

Never settle for a bid from anyone that is a lump sum price. That's a joke. Insist on a penalty clause in the contract for delays that are within the contractors control (ie: not showing up). Lastly, and I think this is pretty important: try to develop a good relationship with your GC if possible. The adversarial relationship won't work for either of you.

Yeah working with GC for your first few deals is always a good thing but having some help from experienced people or someone to check up on your project is even better.

There is no substitute for hands on experience and as such, I highly recommend you get with a few other rehab investors and go to their porjects and ask questions. Some investors in your area may be willing to help you in your education.

In the past, I instructed my students to spend plenty of time at Home Depot and Lowes to calculate specific costs of specific and common rehab repairs such as carpet, paint, doors, moldings, kitchen appliances, bathroom vanities, faucets, etc. Knowing the material costs and some of the install costs will help you evaluate and learn the costs of rehab projects.

It has been said several times but working with a GC is not a bad idea the first couple of times out. Here is what I have found:

There are three general types of cost estimates, each with corresponding degree of accuracy:

1. The "guess" method: (i.e. "All bathrooms cost $5,000.")

2. The "square footage" method: (i.e. "Remodeling costs are $60 a square foot, the job is 500SF, so the price is $30,000.")

3. The "unit-based" method: (i.e. "To replace a toilet the bowl costs $45 and the tank costs $50. The installation of the tank and bowl will take a plumber 1 hour at a rate of $32/hr. Therefore, the cost of material and labor for adding a toilet would be $127." )

The guess(timation) and square footage methods are the most widely-used methods of estimation. They are fast and require less skill. Unfortunately, they are also the least accurate.

When used, these methods introduce too many variables in the areas of material, labor, and timing into your projects and deals. That costs you and your customers a lot of money.

But let's not discount the guesstimation and square footage methods altogether. If you do use these types of estimates, use them for qualifying a deal but never for bidding or negotiating a price.

Unit-based estimation on the other hand, is the least used and most accurate method. So if accuracy matters, then why is it that unit-based estimates are not the standard?

Up until now, producing an estimate that itemizes material costs (unit by unit), labor costs (demolition, removal, and installation) and project timing costs (don't forget those holding costs); was extremely time-consuming, required expert knowledge, and was very costly.

Regardless of time, knowledge and cost; the results of the unit-based method are a very satisfactory tool for determining economic decisions based on price and generate accountability due to the supporting information available for review.

Put in the simplest of terms, if you are doing deals; please use the unit-based method.

Let me know if your interested in learning more about the unit-based method. I have some cool stuff that makes it so simple and cheap it will blow your mind, but I have rambled on enough already.

Best of luck to all!