Do these Rehab Estimate Pass the Smell Test? BRRRR Strategy

12 Replies

Home is listed at 84,900, 3/2/2 (1450 sf built in 1974) with rent expected of about $1,150.  It was stated that it would need a full rehab.  Turns out it was a 2/2/2 it it needs everything!!!  2/2/2 homes that are completely or mostly updated are going for $95-$110k.  Home is block and has good bones and more sq feet than most 2/2 due to the addition of a bonus room.  Bathrooms and Kitchen are original.

At least as a learning experience since this is my 1st deal as an official investor :) (have done a few other rehabs/house hacks), I wanted to try to estimate it out and see what it would be worth offering.  There is not the time or opportunity to do a full inspection (water and electric are turned off) so I need to assume everything.

Here is my somewhat rough estimate on the rehab.

It is possible that I could rent it out without full bath rehabs and maybe the roof can be repaired. 

So to walk away with at least 20% equity, I would need to be in it for something around 30-40k.

So my question is, are my rehab estimates too high?  The rehabs I have done in the past were all do-it-yourself so the cost was much less but there is so much here, I won't be able to do it all.

Even if they accepted a 30-40k offer, I would have alot of cash tied up in this and if the ARV does not come out, the refi may not work in my favor. I am not scared of the work, just does not seem to be enough up side on this one due to the high % of rebab to ARV.

Thank you

Matt

First, you have plenty of square footage to turn the property into a 3/2. Can you make the layout work to create a 3rd bedroom master suite? That will be the easiest way to increase your ARV and give you a bit more room for renovations.

Secondly, it is impossible to assess rehab estimates without knowing what area you are in, but many look off compared to what I would pay. What kind of flooring demo is needed? Your demo cost seems incredibly high. For new flooring, I budget $4/sq ft for luxury vinyl plank, including install. The painting costs seem reasonable, but exterior will vary greatly depending on how much prep work is needed, how many stories, if you’re painting trim a separate color, etc. 

Many of the other costs are just impossible to comment on without knowing the scope of work. 

If you move forward, I would recommend an inspection period so that you can get some contractors through to give you real estimates. Keep in mind that since you don’t yet own the home, you will likely have to pay them for their time.

Jen

Thank you for your reply.  I thought about converting it to a 3/2 but there really isn't a way to do that in this house without some major rework.  The extra sq ft is straight off the back of the house from the kitchen and would have to rework exit to the back yard and more.... I am even a little concerned that the stated sq ft is including a non-conditioned porch space in the back.  

The flooring demo was based on a recent estimate I got for my own home to demo tile or wood.  This home has multiple version of tile throughout in bad shape and would need to be completely ripped up.  I agree that it might still be high for this.  

They have stated they will not have an inspection period but everything could change once the offers they already have find out it is a 2/2.  They had offers sight unseen in the 1st 24 hours.

@matt 

@Matt Moore

The cost are difficult to assume without more detail but here goes:

Flooring 4-5/sq ft includes demo or sweat equity on demo

Paint might be light I use 2 for interior

HVAC $5000 for forced air 80% and central air

Roof $400 per square plus 10% number is good

Kitchen varies so much I spend $2500 on cabinets or less and then double for labor total $5000.  Looks like your kitchen is large.

Garage Door 2 Car $1200

Water Heater installed $800

Bathroom $3000 each this depends on size.  Typically I replace floor, new toilet, sink and base, I refinish tub (do not remove unless you have to) $500, new fixtures.

Good Luck.

@Matt Moore I think your estimates are too low. Of course it depends on a lot of factors, but $7000 for a kitchen is a DIY price.

A kitchen and 2 bathrooms are going to run in the $20k range, easy. Then add flooring at $4 sqft, paint, trim, exterior, etc.... I think you'll find that your rehab is likely in the $30k range, all said and done.

You mentioned rent for a 3 bed, what is the going rent for a 2 bed? It sounds less and less like a BRRRR candidate

@Kenneth Garrett  thank you.  Appreciate the feedback.  I am in Tampa, Fl area.  

Cosmetic upgrades in the bath would work for rental, not for reselling now or in the future, so to get the full AVR, they would need a full upgrade now or later.  They have the original 1970's tile color. 

@Matt Moore

Since you mentioned rent numbers I assumed this was a BRRRR. Based on no utilities I also think this is a bank owned property. Needs a lot of work. Maybe a flip is better in this case. What are the comps?

If you have so many reservations about the property and how truthful they are being, why even consider the property? This seems like a run away scenario to me with your experience level. IMO you should find one that is being sold by people who don't lie and allow for an inspection period so you can bring sub contractors through until you know the numbers off the top of your head

is this a hud? rehab numbers aside, this does not look like a deal. chances of them taking 50% off are slim to none. your costs are not terribly low (not knowing your area, tho). what all are you doing in the kitchen for $7k? like Jason said, this might be a bit on the low side.

@Kenneth Garrett . Thanks. I think it is owner by bank as well. I saw a auction sign in one of the pictures. The ARV as a 2/2 is 95k to 105 in this area for fully updated.

I am happy for the chance to practice the review, estimation process and get advice and that was my primary reason for posting.

Matt, deal aside, your rehab estimates do seem a bit off, based on remodels I have completed. You have nearly $7k in demo costs alone including the flooring demo, general demo, and cleanup. I assume dumpster rental is calculated in one of these although I generally prefer to have it as a separate line item in a budget like this to quantify how many dumpsters I may use across projects. 

I can get tile installed at $2/SF for labor, demo might be another $1/SF on the high side. So I use $5/SF (Inc. demo/labor/materials)...depending on the tile selected. 

$3000 for ALL demo is a bit more typical for a home this size plus dumpsters. 

Kitchen budget only accounts for cabinets, which may be low even if you are not replacing any fixtures, plumbing or appliances. In practice you'll be closer to 10k for that kitchen. 

Any tiling work that needs to be done in the bathrooms should be calculated and done with flooring (if tile) to save on bathroom remodel costs. 

Water heater replacement is a bit low...more like $800 is closer to your actual expenses.

You MUST add 10% for unexpected expenses...you will have them...and you will use it...make sure its a part of your budget from the get go. 

There is no budget for electrical or fixtures...which in a home of this age you will surely replace. 

There are a few more unaccounted expenses you will surely have.

Since this is a Test budget, let's rework it and see what the diff is.

Andres Alexander

"Handy Andy"

Investment Remodeler