BiggerPockets

Hi everyone- I'm trying to start my wholesaling business this summer but I must say I have absolutely no experience or knowledge about rehabbing or its associated costs. I want to be able to walk through a house and know what to offer based on accurate repair estimates and market value using comps. But if I don't know how to estimate the repair costs, what should I do? I know I will eventually learn from experience but I don't want to let this slow me down. Should I try to add a contractor to my team at the beginning to do walkthroughs with me and estimate the repairs? I could refer business to him from my investor network and also give him a cut if I close on the deal. Or should I ask the seller to estimate the repairs and pass that number along to potential buyers and tell them that's what the seller estimated? Does anyone have any advice here?

Hi, Peter has a good point with the sq ft approach, if you can get the numers to estimate different levels of repairs that may be required. Trashed, extensive, significant, updated and minor, or something like that. For a newbie that will be the easiest way to approach the deal. Using say $50.00 per ft on a 1200 sq ft house can exceed the ARV real quick and certainly you don't expect them to pay you to take it.

Using a contractor is probably the best way, if you can find one to work with. Know he will be fudging upward for his profits. If you can find a contractor that will do a flat fee plus costs, and be honest about it, that will give you the closest figures. Either way, you'll need to pay attention and learn before you can do a walk through and do your own estimating, it just takes experience and keeping up with material costs. IMO Bill

Thanks guys, that was a lot of help. I think I am going to try finding a contractor who will work with me. How much do you think a flat fee for giving me an estimate on one house would be? And since most deals don't close, how can I minimize some expenses here? Do I only have the contractor come if I find a very serious seller? Paying a guy a fee for every house I look at can really cut into profits if only a small percent of deals work out.

Hello y'all

Estimating repairs is why every week a new investor should be calling through various vender's and asking questions of them. One of the questions is what certain items cost in a house...

Also for a down and dirty I created the following... Its based on ugly and also needs a little training to use it correctly... However it is also a great tool when in front of a seller...

www.MichaelQuarles.com/Repair_Worksheet.xls

Depends. I'm doing one this week for a contractor up on Ewing street who wanted an estimate for fire repairs. Shouldn't take me more than 2-3 hours. I'm billing him $95/hr for it but capping it at $200 total costs. He is using my estimate as a third party prepared estimate to negotiate pricing.

This is different from getting a price from a contractor because he is already getting prices and is using my estimate to negotiate.

When you get a price from a contractor who's bidding for the job, they should not be charging you for giving you a bid. Be advised though that their patience with you may run very thin if you have them go to half a dozen houses you don't own to do repair estimates for jobs they will probably never get.

On the flip side, paying someone for an estimate is no guarantee of that pricing either. It is a third party opinion and it's up to you to negotiate to it.

There's plusses and minuses to it. Just be aware of what you will get and must do and are expected to do with each option.

Tim

- wondering if I should be teaching an estimating class....lol.....

It won't really teach you repair estimating but that's not a bad thing per se. Market appraisals determine what a home will sell for in a given market. Repair costs are pretty fixed no matter what the home will sell for or it's market value is (South Holland house vs. Navy Pier again).

The confusion is that sometimes insurance adjusters are asked to do "damage appraisals" which are just estimates really. Has nothing to do with what appraisal firms do.

All that being said, working with an appraisal firm WILL definitely help you in learning a critical element of wholesaling - knowing values now and After Repair Value. I would certainly take the opportunity to learn this, just be aware of what skill for wholesaling you will be learning. You need accurate ARV AND repair estimates to effectively present wholesales and this looks like a great opportunity to learn one of them.

Just out of curiosity (I have 2 friends that own appraisal firms in Chicago) what's the name of the company?

Good luck with it.

Tim

Tim's estimate of $95/hour is pretty reasonable in my experience if the contractor/estimator doesn't have an opportunity to win the bid (for example, Tim wouldn't actually get paid to be your GC, so the only compensation he would be getting is the hourly wage).

If you have the property under contract, and you're looking for bids, there should be no cost whatsoever.

And if you have a property that you expect to get under contract, are looking for a contractor to help you with repair estimates, and there is a chance the contractor will get the work should you purchase the property, a flat $50-75 is reasonable.

The key is, the more opportunity the contractor has to make money on actually doing the work, the less he should get paid to provide an estimate.

If you are wholesaling, the contractor just about has zero chance of doing the work, so you have no business asking for free estimates. Using people doesn't serve you well in a business where reputation counts.

Until you have more experience, don't deal with houses that need serious repair.

You can estimate roofing costs by the square and carpet by the square foot.You can easily estimate painting costs by the size of the house.

You can walk through Lowes and get the price of a water heater and kitchen cabinets.

Big heating contractors will give you a by gosh and by golly ballpark price if you explain that you just need a vague idea and haven't purchased a house, yet.

Any removing of walls or the addition of anything new that involves plumbing can get really expensive, so don't buy those houses when you are starting out.

Then don't give your buyers an estimate of costs. Give them a list of what you can see that needs repair and let them figure their own costs. What might cost you $5,000 to do, I might be able to do for $1,000.

On the flip side, if you tell me a house needs $800 of repair because you think all it needs is the walls washed and new paint for fire and smoke damage, I simply will not look at anyhing you offer me again. I'd consider you to be a time waster.

As an experienced rehab investor, I would strongly disagree with the per sq. ft. estimating as Tim and others pointed out how every property can have a multitude of variables depending on scope of work and quality of materials used, not to mention the fact that one investor may be able to do the exact same job as another for thousands less.

I recommend you learn exactly how to estimate on your own - it is not that hard once you learn.

Sage and PNW also made valid points that this IS a RELATIONSHIP biz and having contractors bid on the understanding that they could get the work when indeed you intend to wholesale, gives that contractor 0% chance of the job and is not a good biz practice in my book.

Sage gave a great example of how to build a relationship and create a win win for both parties.

Thanks everyone for some excellent advice. Sage, I especially love what you have managed to do with your GC. That sounds like a great relationship and just might be exactly what I need to get started in wholesaling and learn the ropes of rehabbing as well. Nationwide, I agree that would definitely be bad practice and would spread a bad word throughout the local contractors about my business. If I called upon a contractor for an estimate, I would pay them for their time. However, as Sage suggested, I am going to be thinking of other incentives that I can use in order to avoid these costs and pay the contractor back in ways such as first dibs on free leads and referrals to both investors and owners.