Very green investor here; question is, as I'm looking at properties and trying to gauge what a good deal is, how and when should I know what the renovation costs will be? My concern is if I have a contractor/inspector look at things prior to me submitting an offer, it could be a huge waste of their time (unless this is common?). If I don't do this though, how can I "run the numbers" to know what's a good deal and what isn't? It seems in all of the books and podcasts that contractors are involved after the purchase price has been agreed upon. Thank you for any help!
Here are a few options:
1. You can find a contractor and ask him to look at properties for you whether it be in person or through video. However, in order for them to look at most houses that you are considering, you would have to pay them for their time.
2. In your purchase agreement you can put a contingency basically saying that you will only move forward with the house if the numbers make sense after your contractor looks at the house. This might not work in a hot market with many bidders.
3. Get J Scott's book on Estimating Rehab Costs. He does a great job of breaking down rehab costs based on property type, SF, etc. This can be your first step when it comes to estimating numbers. While they won't be 100% accurate, it is better to have an idea than to not know anything.
That’s great info Tina, thank you! That book has been ordered :)
You are never going to buy a property if you wait to have a contractor look at it first . Contractors are not available at the drop of a hat . And estimates take time to prepare . You will need to figure out whats needed on your own .And have a rough idea about prices . The market is hot , the deal will be gone by the time a contractor can schedule an inspection and give you an estimate .
And if its a good deal , and you dont have it under contract . The contractor you bring out may just buy it . Most contractors also flip houses . And as busy as contracting work is right now , contractors are sitting on piles of cash .
Thanks Matthew, great tips as well. I would imagine Tina's suggested book will help a lot with that process- just have to get out there and be as thorough as I can! But again, thanks for clarifying there isn't an expectation that a contractor/inspector will be available prior to submitting my offer.
@Kyle Kalish , I know that starting out can be difficult when estimating rehab costs. Always make sure you account for added expenses and depending on the remodel, you will likely always have the unexpected. My suggestion will be to really start looking at deals, getting experience evaluating what people will be looking for in a flip, starting to realize what costs are. The more you get your head in the game, the more you'll learn along the way. The contractor, like others said, will need to join you during your Due Diligence phase, not before the house is under contract.
Other areas of possible help are your broker and hard money lender. If the broker is investor minded, they may have some ideas for you. If you are going for a hard money loan, then it will be a good indicator whether the lender will be moving forward or not with the property - because if you don't perform, they are stuck holding it and they will need to know they are covered.
Keep asking the questions - anyone should be willing to help and answer.
@Kyle Kalish - I agree with a lot of the sentiment. If it is truly a fixer upper, I would find a good local contractor and offer to pay him $75-100 bucks to give you a rough estimate on properties prior to bidding. You can offer to walk through the property via facetime or take videos / pictures and send it to the contractor for review. You can even advise that you will seriously consider him or her for the renovation as well to increase their buy-in. At the end of the day, if you want good service and a strong relationship with contractors, you have to pay people what they are worth. The good ones out there have a ton of business and won't waste their time prospecting with investors constantly when there is a ton of work waiting for them.
Very good info, thank you both- it sounds like practice is the best teacher!