Estimating rehab costs during initial lead generation and triage

5 Replies

Hi All,

As I slowly stack money away for my first future rental purchase, I have a few questions regarding estimating rehab costs when going through practice reps.  I'm basically going through properties on Realtor and Zillow to run through the cost estimators.  

I understand there needs to be further analyzed for properties by actually reaching out to contractors, agents, etc. Still, at this time, I'm currently just taking practice reps at finding and analyzing properties. 

Is there a rule of thumb when it comes to estimating rehab costs on the calculator that is on the safe side?  I'd rather have a large margin/buffer for error when calculating these rehab costs.

The current process I am using:

* Using realtor or Zillow to find properties 

* Running through the rental calculator and making a spreadsheet to track

* Leveraging this video and deck as my starting point: https://biggerpockets.s3.amazo...

    hey Carlos, as with lots of things "it depends". Where are you looking to invest and what types of finishes (rental grade, high end, etc) are you going for? Some people use the sq ft method while others might just estimate every individual job (floors, paint, cabinets, shower, etc). J Scott wrote a great book titled The Book on Estimating Rehab Costs which i've found to be a great reference guide.

    Hi Carlos,

    Nice question. Start walking through prospective purchases and bring a big notebook along. Get some rough measurements of the areas needing repairs. List the things you think need work and begin calling contractors. You should be able to get a picture of the per square foot cost for labor, such as flooring or painting.

    It seems like you have a good start. Move on to actually purchasing one of these that you have evaluated. You will learn the most from this.

    The only rule of thumb I have for you is to overestimate the costs for each step of your project, at least when starting out. Good luck.

    Originally posted by @Dan Portka :

    hey Carlos, as with lots of things "it depends". Where are you looking to invest and what types of finishes (rental grade, high end, etc) are you going for? Some people use the sq ft method while others might just estimate every individual job (floors, paint, cabinets, shower, etc). J Scott wrote a great book titled The Book on Estimating Rehab Costs which i've found to be a great reference guide.

    Thank you for your input.  The square foot method is likely to continue to use with a large margin for error until I actually get into a place and check it out with contractors.  I truly feel that I will never really know until I'm ready to make my first purchase, which doesn't end up in analysis paralysis. 

    I do have this book. I'm finishing up the BRRR book, and then I'll get onto that one.

    Originally posted by @Benjamin Aaker :

    Hi Carlos,

    Nice question. Start walking through prospective purchases and bring a big notebook along. Get some rough measurements of the areas needing repairs. List the things you think need work and begin calling contractors. You should be able to get a picture of the per square foot cost for labor, such as flooring or painting.

    It seems like you have a good start. Move on to actually purchasing one of these that you have evaluated. You will learn the most from this.

    The only rule of thumb I have for you is to overestimate the costs for each step of your project, at least when starting out. Good luck.

    Thank you, sir.  I guess to understand truly is actually to jump into the deep end and do a deal.  I didn't realize the gap between practice reps with BP calculators and actually finding it, getting the proper individuals involved, and executing on a deal.

    Another question, if you don't mind me asking.  My wife and I are building our first home in Las Vegas and will be completed next year in mid-summer.  My concern is that if I do a rental property before officially getting a mortgage on the home (we are already pre-approved and are saving for the downpayment when complete), this will affect my ability to get that mortgage for my primary residence when it comes time to close if my name is on loan.  What is the best course of action to achieve my first rental without affecting my ability to get a primary residence mortgage?

    @Carlos Feliciano II Congratulations on your first home. If you buy the rental in your name this will have an effect on your debt to income ratio. Depending on where that goes, it might have an effect. If you buy the rental and get a commercial mortgage you'll have better chances of getting a personal loan on your house. Sounds like you are already building so you are probably using a construction loan and will transition into a traditional mortgage. Once you have the rental deal, bring it to your current banker, who will be able to give you a specific answer.