Easy way to estimate costs
Vernon Hills, IL · Member since 2008 · 6 posts · 0 votes
Can someone suggest a good way to estimate repair costs, or should I just stick with quotes from multiple contractors?
I realize this is an old thread, but as someone who just started in this business about 8 months ago, and who just finished his 8th rehab (using all licensed contractors), I can shed some light on my learning curve...
The quick summary is: There is no *easy* way to learn how to estimate rehab costs, but with a good bit of effort and diligence, anyone can do it.
The first project I ever did, I decided to call five contractors to get bids; I put together a detailed scope of work and materials list, and had the contractors come out and walk the project with me. After three days of talking to contractors, I finally started getting the bids rolling in... The lowest bid was $45K and the highest bid was $75K!
I was flabbergasted and didn't know where to go from there, as I had only budgeted about $35K. Then I started talking to some other investors I knew, and I quickly realized something very important:
There are different types of contractors and not all types are good for investment rehab projects.
The five contractors I had give me bids were GCs who were mostly focused on residential remodeling and residential construction. They are the guys who will charge $50K to put in a new kitchen, and are probably worth every penny. They do schematics, they let you pick whatever finishings you want (and they provide them), they have their own project managers, suppliers, etc.
You can easily estimate the cost of these contractors using standard construction estimating software tools; many of them use these same tools to give you their quote.
Fortunately, there are thousands of other contractors (yes, many of them are licensed and insured) out there who can do just as good a job for a fraction of the cost. Sure, they may not provide their own materials, they may not draw up nice schematics, they may not provide their own project management, scheduling or oversight, but they can do the same $50K kitchen for about $10-15K.
You don't find these guys in the Yellow Pages (generally); instead you find them via references from other investors, at your local REIA meetings, at Home Depot shopping for materials, or you might just stop by a job stop you happen to drive past (assuming it looks like they're doing a good job) and grab the number off the back of the their truck or hand them a card. These guys don't have a lot of overhead, and can pass that savings on to you.
It took me a while to find a GC for my first project that could hit my budget, but I finally found a guy who would do it for $30K. He was essentially a glorified handyman who could do all the carpentry work, and who could call in specialists for things like painting, roofing, electrical, plumbing, etc. To this day, that guy is my handyman/generalist on all my projects.
I spent that first project learning everything I could. I asked every specialist as many questions as I could think of, I researched material costs for every item I used in my rehab, I asked for pricing from the contractors for everything from installing a window to replacing a roof.
By the end of that first project, I had a pretty good idea of how much materials would cost for any project moving forward (I created a materials spreadsheet that I took to Home Depot and copied prices off the shelves), I had a pretty good idea of how much the basic contracting tasks would cost, and I had a pretty good idea of how much time it took to do things like install hardwoods, install a faucet, replace a window, paint a house, etc.
I knew that even if I didn't come in exactly on budget or schedule on that first job, I would certainly learn enough that I wouldn't make any of the same mistakes on the next job.
Here I am on my ninth project, and I've gotten rid of the idea of using a GC (except on the very complex projects), and instead have hired my own project manager and then contract out to my own subs. I've probably gone through 50 different contractors in the past 8 months, and I'm finally starting to build a team of guys that are absolutely amazing. I have my landscapers, my painters, my roofer, my cabinet guy, my countertop guy, my flooring guy, etc.
The best thing is, because I use the same guys over and over, I know EXACTLY how much they charge for everything. And because I use them over and over, I get great prices. If I can measure the size of a roof, I know how much my roofer will charge me to replace it. If I can measure the size of my floors, I know how much it will cost to install hardwood, carpet, tile, or vinyl on those floors. I know how much it costs to install a new door, a new window, a new A/C unit, a new furnace, new appliances, etc. I can walk through a house now and estimate the rehab costs to within about 10% in about 15 minutes. Give me another two hours to put together a scope of work, and I can estimate the rehab costs to about 3%. Consistently.
AND 8 MONTHS AGO, I BARELY KNEW HOW TO CHANGE A LIGHTBULB.
Having said all that, here are some tips:
- Buy all your own materials. Better yet, have your contractors buy them, but you specify the specific items and where they should be purchased. This way you know EXACTLY what your material costs are.
- If you do a lot of flips, go meet the guys at the Contractor Desk at Home Depot. They are your new best friends. I now get all my materials for about 25% off retail price at Home Depot, because I exclusively shop there and they know me (and my contractors).
- On your first flip, get a referral from other investors for a good GC. Get him to give you an estimate on the project, and if you like the estimate (and him), get it in writing. Then use him as your GC. Ask a million questions, both of him and his subs. Figure out how long typical tasks take, and ask the subs how much they charge for things so you know for next time. Once you know that your sub charges $50 to install a pre-hung interior door, go out 10 other contractors how much they would charge, and you'll start to see a pattern.
- My opinion: Only deal with licensed and insured contractors. This protects you legally and financially in most cases. My painter didn't have workman's comp for his crew when I met him, but his work was fantastic and his prices were amazing. I gave him $1500 to get his guys insurance coverage so I could hire him -- today, he's done 6 projects for me, has made nearly $30K off me, and has saved me probably close to that same amount because he's so inexpensive. Win/win.
- My opinion: Always have contracts with every contractor. Both an independent contractor agreement and a signed scope of work.
- My opinion: Always get your contractors to fill out a W9 form for tax purposes. If they don't, you'll end up paying the taxes for them. If they're not legal and can't fill out the W9, then they're also not licensed and insured, so don't use them.
- Generally stay away from the lowest and the highest bids on a job. Always get references from contractors. Always ask to see previous work they've done.
- Never pay ahead of the work being done. If a guy says he wants 50% upfront, find another guy. The one exception is for jobs where there is significant upfront material cost (such as putting on a new roof). For those, make sure you're working with a reliable contractor who won't walk away with your cash.
- When dealing with a GC, always hold back 10% of the payment for 15-30 days after the project ends. Things will come up after the GC walks away from the project (leaking sink, stuck door, etc), and if you don't owe him any money, it can be difficult to get him back to fix it.
- Don't ever take advantage of your contractors. If you underpay or take advantage of your contractor on one job, he won't be around for the next one. Be fair, especially with the good guys you want to keep around.
I can probably think of hundreds of more suggestions (and many are on my blog), but you get the idea...
Good luck!
Xactimate. Hands down best/easiest estimating program I've ever used. And I've created about 1200 estimates.
How do we get our hands on this program Tim? What does it cost? Is it a software application?
Thanks in advance.
Will
Will,
I did an internet search - www.xactware.com - they even have training courses
John
I have not used it myself, but have some friends who are Cat Adjusters and they seem to like it.
I think it runs about $200 a month or so and is a web based program.
The adjuster version runs $300 for a 30 day license. The program will still work after that but you won't get pricing updates without buying a further license. For adjusters, we must keep our pricing updated so we typically buy 1 year licenses.
I'm not sure what the contractor version does.
Thanks for the recommendation, Tim. I've contacted the company to see if there is a way we (BiggerPockets) can work with them.
Josh,
I know they've been watching this site. I gave a referral for them a couple months ago here in the forums and was e-mailed by a representative from Xactware corporate for a testimonial.
Tim
RSMeans puts out several estimating books. Some are pretty pricey though. The one I have ($25 bucks) is titled, "Interior Home Improvement Costs". They also have one for exterior improvements. In the back of the book they have a section for adjusting the cost based on your location.
Not a bad book for rough estimates. I used it alot when I was in construction.
Also, a great way to learn about the estimating process and way various jobs can be done is to have out several contractors and have them explain how, why, and how much their tactic works and will cost. You may find that sometimes the prices differ dramatically, not because of inferior materials or labor, but because one contractor is using a different approach to the job.
Joe
I think the best thing would be to do both. Develop a spreadsheet that will help you perform a takeoff on the specific elements of the project and associate costs to those tasks. Then solicit bids / pricing and develop another spreadsheet to track and evaluate these prices. Compare the two so you can stay up to speed with current pricing in your local market and viola!
I found this site that has lots of pre-configured templates specific to the construction industry that are designed for MS Office, a program you probably already have anyway (Like myself and most other PC users). Saved me tons of time building spreadsheets and other documents because they’ve already done the work. I think the guy is a contractor himself.
You might want to check it out: http://www.constructionofficeonline.com
Folks, please note that the site in the previous post sells Office templates.
You have to know these repairs
costs of the top of your head
Software forms contractors forget it
If you do not know go to home depot
and talk to the trades people walking
in/out
In fact pick up a guy there he will moonlight tilers HVACs, ect they'
all go into these places
You have to know repair prices
right away and where to get the
absolute bottom price and the best
quality.
If you do not have these connections
get them of find them
If you have to ask price this clearly
shows you that you do not know this
or the basics in investment property
SKI
Instead of telling a newbie that "If you do not have these connections get them of find them If you have to ask price this clearly shows you that you do not know this or the basics in investment property", why don't you share where and how you got your information/knowledge? I mean, you remember when you first started in the business, right? Was it helpful to you back then if someone basically told you, "You don't know what you're doing" when you asked them a question?
Gaining knowledge and experience is a process- not an event. Please share how you become knowledgeable in estimating repair costs.
I agree with Howard here
I am a contractor and I get calls ALL THE TIME from folks who want us to come out and give them a free estimate. They think I get excited walking around with them while they talk about the amazing project they want to build. When I ball park it for them, they freak out because they do not have a clue what a project will cost or what it costs to do an estimate (figure 40 hours or more for a big project) or run a contracting company.
It takes decades to know how to do an estimate on a complicated project. A handy guy can do one for a new door or vanity, not a big project. This is when an unprofessional contractor moves off your job and you call a lot looking for him.
The absolute best way to get a great estmate on a complicated project is to pay a GC for one, OR develop a relationship with a great general contractor you will actually give the work to. He/she can show you their costs and mark up on costs.
I tell my investors right up front that minimum mark up on COGS is 1.5 - 1.67 for a complicated custom project. Your contractor is going to want to walk away with 5% profit minimum on a commercial project, or 8 -10% profit on a residential project. As a professional investor, you should understand your contractor too is in business to make a profit.
You can also hire a GC as a project manager to do this coordinating for you, he/she is gonna want to see 12 -14% of project revenue as pay.
You can find Cost vs Value reports in Remodeler Magazine. They put regional reports out annually.
You can locate reputable professional contractors via NARI or Remodelers Advantage - 2 national professioanl organizations. Our company belongs to RA.
Stick to your knitting and hire a pro. Develop your team.
Diane
Diane is right on. If you are doing a project that requires more than 1-2 trades then a GC is worth the investment.
A GC will provide you with a guarenteed price, and a guarenteed standard of quality.
If you do try to deal w/ multiple contractors yourself w/ no experience count on spending 30-50% above your original estimates and fighting like hell to get them to finish their work to the quality that you expect or even finishing their work at all.
http://www.marshallswift.com/p-113-the-home-repair-remodel-2009-cost-guide.aspx
It's been mentioned to me before, however I have not tried this route yet. Is to get a ride a long with an insurance adjuster and bring your sponge brain for maximum absorbing.
You guys should stick to your knitting - RE investing.
You should team up with professional remodelers and builders, GC, and also team with some small solo folks like plumbers, electricians, painters, etc.
All these folks should be in our team. Have lunch with them. Spend some time. Give your team members the work. Don't nickle and dime. Don't try to learn how to be a GC. Approach them from a place of abundance.
I did an informal check on some other GC's I know who all do around 1 mil a year. It costs them about 100K of personal investment (time, free labor, family loans...) to get the business to where they can gross 1 mil.
It takes about 10,000 hrs of time, to be an expert at anyting. (read Outliers by Malcom Gladwell)
Just 2 things to think about when you pay $200 for an estimating tool.
Good luck to you.
Diane
I have a worksheet for all those interested. I have used it for yrs. I revert back to it every know and then, but it is excellent for NEWBIES, OLDIES and GOODIES. Just being funny, but if you would like a copy pm me your email address and I will get it to you.
SHARING IS CARING. Always looking to help those trying to SUCCEED.
SUCCESS BREEDS SUCCESS
I realize this is an old thread, but as someone who just started in this business about 8 months ago, and who just finished his 8th rehab (using all licensed contractors), I can shed some light on my learning curve...
The quick summary is: There is no *easy* way to learn how to estimate rehab costs, but with a good bit of effort and diligence, anyone can do it.
The first project I ever did, I decided to call five contractors to get bids; I put together a detailed scope of work and materials list, and had the contractors come out and walk the project with me. After three days of talking to contractors, I finally started getting the bids rolling in... The lowest bid was $45K and the highest bid was $75K!
I was flabbergasted and didn't know where to go from there, as I had only budgeted about $35K. Then I started talking to some other investors I knew, and I quickly realized something very important:
There are different types of contractors and not all types are good for investment rehab projects.
The five contractors I had give me bids were GCs who were mostly focused on residential remodeling and residential construction. They are the guys who will charge $50K to put in a new kitchen, and are probably worth every penny. They do schematics, they let you pick whatever finishings you want (and they provide them), they have their own project managers, suppliers, etc.
You can easily estimate the cost of these contractors using standard construction estimating software tools; many of them use these same tools to give you their quote.
Fortunately, there are thousands of other contractors (yes, many of them are licensed and insured) out there who can do just as good a job for a fraction of the cost. Sure, they may not provide their own materials, they may not draw up nice schematics, they may not provide their own project management, scheduling or oversight, but they can do the same $50K kitchen for about $10-15K.
You don't find these guys in the Yellow Pages (generally); instead you find them via references from other investors, at your local REIA meetings, at Home Depot shopping for materials, or you might just stop by a job stop you happen to drive past (assuming it looks like they're doing a good job) and grab the number off the back of the their truck or hand them a card. These guys don't have a lot of overhead, and can pass that savings on to you.
It took me a while to find a GC for my first project that could hit my budget, but I finally found a guy who would do it for $30K. He was essentially a glorified handyman who could do all the carpentry work, and who could call in specialists for things like painting, roofing, electrical, plumbing, etc. To this day, that guy is my handyman/generalist on all my projects.
I spent that first project learning everything I could. I asked every specialist as many questions as I could think of, I researched material costs for every item I used in my rehab, I asked for pricing from the contractors for everything from installing a window to replacing a roof.
By the end of that first project, I had a pretty good idea of how much materials would cost for any project moving forward (I created a materials spreadsheet that I took to Home Depot and copied prices off the shelves), I had a pretty good idea of how much the basic contracting tasks would cost, and I had a pretty good idea of how much time it took to do things like install hardwoods, install a faucet, replace a window, paint a house, etc.
I knew that even if I didn't come in exactly on budget or schedule on that first job, I would certainly learn enough that I wouldn't make any of the same mistakes on the next job.
Here I am on my ninth project, and I've gotten rid of the idea of using a GC (except on the very complex projects), and instead have hired my own project manager and then contract out to my own subs. I've probably gone through 50 different contractors in the past 8 months, and I'm finally starting to build a team of guys that are absolutely amazing. I have my landscapers, my painters, my roofer, my cabinet guy, my countertop guy, my flooring guy, etc.
The best thing is, because I use the same guys over and over, I know EXACTLY how much they charge for everything. And because I use them over and over, I get great prices. If I can measure the size of a roof, I know how much my roofer will charge me to replace it. If I can measure the size of my floors, I know how much it will cost to install hardwood, carpet, tile, or vinyl on those floors. I know how much it costs to install a new door, a new window, a new A/C unit, a new furnace, new appliances, etc. I can walk through a house now and estimate the rehab costs to within about 10% in about 15 minutes. Give me another two hours to put together a scope of work, and I can estimate the rehab costs to about 3%. Consistently.
AND 8 MONTHS AGO, I BARELY KNEW HOW TO CHANGE A LIGHTBULB.
Having said all that, here are some tips:
- Buy all your own materials. Better yet, have your contractors buy them, but you specify the specific items and where they should be purchased. This way you know EXACTLY what your material costs are.
- If you do a lot of flips, go meet the guys at the Contractor Desk at Home Depot. They are your new best friends. I now get all my materials for about 25% off retail price at Home Depot, because I exclusively shop there and they know me (and my contractors).
- On your first flip, get a referral from other investors for a good GC. Get him to give you an estimate on the project, and if you like the estimate (and him), get it in writing. Then use him as your GC. Ask a million questions, both of him and his subs. Figure out how long typical tasks take, and ask the subs how much they charge for things so you know for next time. Once you know that your sub charges $50 to install a pre-hung interior door, go out 10 other contractors how much they would charge, and you'll start to see a pattern.
- My opinion: Only deal with licensed and insured contractors. This protects you legally and financially in most cases. My painter didn't have workman's comp for his crew when I met him, but his work was fantastic and his prices were amazing. I gave him $1500 to get his guys insurance coverage so I could hire him -- today, he's done 6 projects for me, has made nearly $30K off me, and has saved me probably close to that same amount because he's so inexpensive. Win/win.
- My opinion: Always have contracts with every contractor. Both an independent contractor agreement and a signed scope of work.
- My opinion: Always get your contractors to fill out a W9 form for tax purposes. If they don't, you'll end up paying the taxes for them. If they're not legal and can't fill out the W9, then they're also not licensed and insured, so don't use them.
- Generally stay away from the lowest and the highest bids on a job. Always get references from contractors. Always ask to see previous work they've done.
- Never pay ahead of the work being done. If a guy says he wants 50% upfront, find another guy. The one exception is for jobs where there is significant upfront material cost (such as putting on a new roof). For those, make sure you're working with a reliable contractor who won't walk away with your cash.
- When dealing with a GC, always hold back 10% of the payment for 15-30 days after the project ends. Things will come up after the GC walks away from the project (leaking sink, stuck door, etc), and if you don't owe him any money, it can be difficult to get him back to fix it.
- Don't ever take advantage of your contractors. If you underpay or take advantage of your contractor on one job, he won't be around for the next one. Be fair, especially with the good guys you want to keep around.
I can probably think of hundreds of more suggestions (and many are on my blog), but you get the idea...
Good luck!
Thanks for the informative post JS!
A Craftsman has the right and should be expected to earn Craftsman wages. A Craftsman that is also a business owner should be doubly so. If he doesn't then there is usually good reason why......... buyer beware.
No offense but reputable Contractors steer clear of flippers and Realtors like the plague. You may get lucky with a "new" contractor just starting out - but once he realizes what it costs to run a business AND collect a decent wage - his rates will double, tipple, or he will go down in flames taking everyone with him. You get what you pay for my friends.
Sorry for the rant - back to the original question: a good way to ball park your cost of repairs is to buy an estimating program or book.
We currently use Xactremodel Software for $600 a year subscription. It is an absolute power house of knowledge but more than the average person needs.
RS Meens http://rsmeans.reedconstructiondata.com also has decent books (but with a lot less detail). If you want to look it over before purchasing there are usually copies that you can check out at the local library. Used copies can be found on Amazon.
When I was first starting out I used the Craftsman Cost Estimators http://www.craftsman-book.com they have the least amount of detail at all and are by far the cheapest. From there we kept evolving and paying more for better quality books and software.
This has not been my experience... (and I've dealt with a lot of contractors, both good and bad)
Certainly, a "craftsman" is unlikely to generate the income he desires from working with investors, but good contractors can make a good living working with good investors (my contractors certainly do).
My contractors are very good, getting steady work from my projects, and making good money. Plenty of other "reputable" contractors are starving these days because they can't find work in this economy.
Just my experience...