Updated over 9 years ago on . Most recent reply
Estimating Improvements and Maintenance Costs
It seems to me that one of the most subjective numbers when analyzing a deal is the improvement/maintenance costs. I have heard a fair number of horror stories regarding inaccurate budget projections. Obviously these are never going to be 100% accurate, but what are some measures you can take that will help mitigate risk in this area specifically? Is it just experience based knowledge, are you safer overestimating, etc?
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@Christopher Madden Just look Up J scott books on amazon. He's got two of them and that's all you need if you want to get started on rehabbing properties. The book is extremely informative and you will probably need to read it several times to get a grasp of it. With that said, even after you are done reading the book, you might be off on your estimates a little bit, but you should be relatively close. Every contractor is different and choosing the right contractor is key to make money on each project.
Here are some additional tips of what I've done in the past:
-Check recent sold REO properties that sold way under market value. Go on a weekday to this addresses and there's a good chance there will be a contractor working on the property. You can ask them what is being done in the house and how much he's charging the investor. Repeat the process several times.
-If you find a deal that you think has potential, get it under contract and pay a contractor to bid the project. You have an inspection period and an attorney review period that protects you from losing your earnest money.
Keep in mind that you still have to do your own due diligence when hiring a contractor. Also, you asked if it's safer to overestimate. While it could potentially prevent you from overpaying for a property, it will also make it a lot harder to find a good deal on the MLS. Depending on your market, there can be a lot of competition out there, and people who estimate a lower repair costs than you will be willing to pay more (Assuming both of you are looking to get the same profit margins).