Hey BP Family!! As I look to purchase my first property, my fear and nerves are constantly keeping me from obtaining this milestone..with my biggest fear being estimating rehab costs initially. I fear the idea of purchasing a property with improper rehab expectations, and it ultimately turning out to way above budget. So I decided to reach out to the BP family for some tricks/tips. What are some ways that you all estimate rehab costs when viewing properties initially? I know estimates are just that (estimates), but what ways have you more-experienced investors used to get as close as possible to predicting costs??
Thanks in advance! Any and all advise is very much appreciated!!
Bring a GC with you in your initial walk-through.
I agree with @Ronald Allen Barney . You can attend a local meet up for a word of mouth referral to a credible GC is you don't have one. They should be able to give you a rough estimate.
Learning to estimate rehab costs is a process that takes time and experience. Here's the steps you should take to learn the basics of estimating rehab costs:
#1 Read 'The Book on Estimating Rehab Costs'
First, you need to build a foundational knowledge of construction, inspecting properties and putting together a detailed SOW.
JScott's 'The Book on Estimating Rehab Costs' is a great resource for new rehabbers to learn how to Estimate Repair Costs on 25 common rehab repairs.
#2 Explore Lowes and Home Depot to Learn About Material Pricing
Take a tour through Lowes and Home Depot (or their websites) and look at finishes materials and fixtures that you will consider using in your rehab projects. This will help you get a better idea of what tile, hardwood, carpet, plumbing fixtures and light fixtures costs for your rehabs.
#3 Contact Local Contractors for Labor Pricing
Call local Subcontractors and get budget pricing for common repairs on your typical rehab project.
For example, call a roofer and ask what their average cost per Square of Architectural Asphalt Shingle Roofing would be on a 1,500 sf house, with a 6/12 pitch.
Note: Some contractors will be reluctant to share pricing without seeing the property, but tell them you are just looking for a rough budget number you can use on future projects.
#4 Compile Your Prices into a Spreadsheet or Estimating Software
Once you start to get a better understanding of Labor and Material costs you will want to store this data into a spreadsheet or software that you can use to help you streamline the estimating process.
The Book on Estimating Rehab Costs comes with a spreadsheet that you can use to help you populate your own database of labor pricing and material pricing. Or you can download my estimating templates I have in my Biggerpockets fileplace:
There are other Estimating Softwares available as well which can help you manage the Estimating process as well...
#5 Practice, Practice, Practice
Walkthrough potential rehab properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.
#6 Get Your First Rehab Project
You can practice all you want, but ultimately you will learn the most about estimating rehab costs by actually rehabbing a house. Getting your first rehab project will require you to create a SOW, talk to contractors, compare and review bid proposals, review budgets, & make countless trips to Home Depot.
You will inevitably make mistakes and underestimate things, but you will learn 90% of what you know by just doing your first rehab!
If you aren't comfortable estimating costs on your own or aren't willing to put in the work to learn how to estimate rehab costs then you need to team-up, partner, or hire someone you like a GC as others have mentioned to help you with this process.
You will eventually want to learn the ropes yourself, but for now do as was suggested and get a good (preferably older) GC to walk it with you. You will gain a wealth of knowledge that you cannot get anywhere else.
David Robinson is spot on! You need to know how to cost yourself without a GC.
Are you investing from a distance or locally? Do you intend to use a property manager? I rely on mine for my rehab costs and expectations. A realtor and GC are also good resources
Thanks everyone for the advice!
I'm investing locally here in the Atlanta area. I've read a few books already (including the ones suggested above), but I think the best thing for me now might be to use a gc for peace of mind.
Another suggestion for learning how to inspect properties would be to hire an inspector to walk the property with you.
I actually just heard an interesting tip from Tarl on this BiggerPockets video at 16:21:
Tarl said when he was first starting out, he would hire a home inspector to inspect the property with him and follow them around the house and ask them questions.
Typically a home inspector might charge $400 to inspect a house, but that's because they spend several hours putting together an inspection report.
Tarl said to keep the costs down, he told the inspector he didn't need the formal inspection report.