“Checking” Your Analysis Work

3 Replies

Hi Everyone,

New investor here. I have a Finance/Cash Management background and per the advice on the forums and podcasts, I am currently trying to analyze a large volume of properties in the market I’ve selected before making any offers.

The main problem I'm running up against is "checking my work" for the rehab estimates I'm selecting. For all of you seasoned investors how did you get to a point at which you were comfortable with your rehab estimates by just looking at a property on the MLS?

I’ve bought J Scott’s books and go through them line by line when doing rehab estimating but it again goes back to my problem of not being able to verify that those numbers are correct. There is also the problem of this approach taking quite a long time.

I understand that I will be performing inspections to confirm my assumptions but I feel like I might be missing something here. What’s the point of analyzing properties if you don’t know of what you’re doing is correct?

Thanks for your time!

Nick

@Nicholas Anderson i would analyse the houses as rent ready. If the numbers make sense then see the house. Get 4 or 5 houses that meet your goals and go see them. Call local sub contractors and get an estimate for various projects. Flooring in my area is $3 sf + cost of materials. If it is a major rehab I would pay a contractor to walk the property and get a better idea of the cost. I would never try to estimate cost from pictures. 

Hi Tim,

Thanks so much for the feedback. It seems like everywhere I'm looking, reading, and listening investors are at least trying to estimate the rehab costs before making a decision to do a more thorough analysis and eventually see the property in-person. Wouldn't most properties look fairly good if I were assuming they were rent ready? Perhaps there's something I'm missing.

After all, won't rehab costs play into "Cash Needed" and therefore impact the Cash on Cash Return on Investment? If CoCRoI is one of my deal criteria (which it is), then shouldn't I be trying to use a rehab estimation to eliminate the "duds" before seeing a property? How would you adjust your approach when looking out of State?

Thanks for your time!

Nick

@Nicholas Anderson I assume another of your criteria is cash flow. If an area only supports a $1500 rent and priced at $250000 makes no sense to analysis it. You can eliminate a lot of properties that you don't have to run the numbers. If it's close then you spend the time. I would never estimate anything from pictures. If you are investing out of state you have to find what the local costs are to estimate your rehab. As you say the more cash your rehab cost will affect your cash on cash.