If you get a good lead, but you aren't good on estimating the cost to rehab the property, what is your procedure for figuring out the figure? Right now I've had my contractor quote work out. A few problems, first is that it takes awhile to give me a full detailed quote. I can't make an offer until I know this figure. I can tell that a lot of work goes into these quotes... Second, a lot of these deals that are at first promising end up falling through... I'm afraid that my contractor may think I'm starting to waste his time. Of course I hope that one day I can walk into a home and be able to estimate my own rehab cost, but I'm not there yet.
Talking to the seasoned house flippers out there, what do you all recommend? Many thanks! :)
Hey Zac, ive been flipping for a while now so I can only give you the advice I have given others starting out. You make your money when you purchase the house, and one of the biggest keys to knowing what price to purchase the house at is in your rehab numbers. I have seen far too many newer investors under estimate rehab and get hosed.
SO, with that said, here is what I would do starting out. First know that the more you walk houses and analyze them, the better you will get at this and the faster you will get as well.
Some investors do a price per sqft number to estimate repairs. This is a very broad way of doing things, and I do not recommend it starting out, but it is a way to eval quickly. Many of us will use the price per sqft when buying at auction and we cannot get into the house. For example: 1500 sqft house, looks in ok shape, probably cosmetic mostly, in my area of Seattle (things cost a lot here), I would put on $25/sqft, so rehab estimate is $37500. This can be a high estimate, but it gives a good buffer. If the house looked thrashed, I can jump that number up to 35, 45, even 85 if im downtown seattle and need to go high end finishes and cant knock the house down.
The other way is to get a few more bids from multiple contractors on houses, have them line item the bid. Then break their bid down into units you can use so you can help estimate your rehab. For example: if a contractor bids a full bath remodel with a tub insert, double vanity, vinyl floor, etc and it costs $3000, and the other contractors come around the same, then you can average this out and know that low end bath remodel is $3k. You can do this for the kitchen, and other rooms to. For paint, I measure based on livable sq/ft, many painters price per paintable surface sq/ft. So if a painter says its $2000 for interior of a 1000 sqft house, I know they are $2sqft of livable space. The more you keep records and track this stuff the better you will get at remembering it all.
I can literally write a book on how to do this on this post so ill stop it with this. Get more bids from more GC's, ask lots of questions, break their bids down, keep a file of the costs that you can reference, and then soon you can get a ok estimate of rehab on your own. OR, partner with someone that is good at it and don't try to do it all your self, this way you can learn from them.
Just a thought but if you have no experience in construction maybe you could offer to partner up with someone who does have that experience that way they will be in it with you and the cost of repairs will be a lot better than if you are hiring them to do the work. Most contractors will not want to keep coming out to give you estimates on jobs that they are not getting any work from. After you do a few deals with someone experienced in construction you will start learning what the costs will be. Good luck
Hey Zach, have you checked out J Scott's books yet? He has one on estimating rehab costs. Search for it here on BP!
sorry, I didn't mean to misspell you name, @Zac P. ;)
Estimating is a good skill to have. You will learn it by chatting with contractors and getting work done on rehabs. Wandering around Home Depot and Lowes will also give you an idea on how much things cost.
I've purchased a house flipping spreadsheet that has worked very well. Most of the numbers that came already in it are pretty comparable to my area, plus I can add my own numbers in too.
This is an older post but I'm in a similar boat and I'm a newbie. Read the BP books and J Scott's books so I could get an idea of what to expect. I am in the Tacoma/South King Couny area so I'm reaching out to you two since you are familiar with the area. Can you recommend GC's to me? I am at that point of knowledge saturation and ZERO steps toward action other than looking at all the listings. It's to the point where I fear I might just hop into a deal just to get one done! Even if its a bad one. Dangerous I know.
@Zac P. hey Zac. I've found a relatively decent way to ascertain the repair costs (but they typically go a little over real-life, which is great, but might steer you away from some otherwise decent deals). The entire analysis is a function of independent variables, such as sq. footage, age, number of beds/baths, whether there's a deck, fireplace, garage, and ARV, etc.
To give you a very rough example, I automatically assume that anything older than 1980 will need all new electrical, heating, and plumbing. They also need new roofs and probably new siding (but that will be affected by pictures and any comments from the listing agent). Every home gets a full paint job, several thousand in landscaping, and new appliances. But here's another kicker, the cost of appliances for a $200k home are going to be quite different than for a $1,000,000 one. Same goes for the quality of the flooring, windows, upgrades to bed and bathroom, etc.
What you might want to do for your area is to call around and get quotes for a whole range of work AND with different pricepoints. As well, determine what quality of work buyers are demanding for various price points. Is super cheap 90 cents/sq. ft. laminate acceptable for a $300,000 home? Or are you going to need $8/SF engineered hardwood? Same goes for everything else.
Starting off with an assumed price per SF is fine. But i'd spend the time and energy getting those repair estimates as accurate as possible. It will make a huge difference and could end up saving you from a disaster.
And think of it this way, if you go over-budget by $10,000 (for instance) that is the exact same as if you PAID $10,000 more for it. Vice versa when getting under-budget.
In my humble, albeit professional opinion, getting accurate repair figures is even more important than getting the property at the ideal price.
I've been hearing that flipping is not feasible in the Seattle area currently. Is it because sellers want top dollar, or wholesalers/flippers can't seem to leave enough meat on the bone? Just curious.
I've always heard regardless of the market, there are deals, you just have to be persistent. Also, I could be wrong, but are a lot of flippers banking on appreciation for their rehabs? In my opinion, this wouldn't be a viable strategy long-term.
@Joe Kooner - from flippers I know used to be highly active in the area, it's a combination of not enough meat on the bone and a lack of reliable, skilled contractors as the main drivers that are pushing them out of the market.
These flippers have left the market because their goals tend to be on the order of at least 5 flips per month and there isn't enough profitable inventory in the pipeline any more to support this level of activity. For smaller scale investors interested in doing <5 flips per year, Seattle area is still probably feasible.
@Alex Chin thanks for the insight Alex! It's good to know that there's some feasibility and positivity for the flipping market. I don't mean to call out anybody but a part of being a good wholesaler is leaving enough meat on the bone for your end buyers so they come back for me. But I can see how difficult it can be for the high volume guys when inventory is low.
@Joe Kooner flipping is still happening. I'm active in the Bellevue area and I know of 3-4 others still active in the area. Personally my strategy has changed but it's still happening
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