Estimating Rehab Cost

[Jason Malabute]

While estimating rehab costs before you have walked through all the units in person, I highly recommend you assume that all of the units need a complete interior rehab! Even if the owner tells you otherwise, you should still assume that all of the units require a rehab because:

• -If it’s Mom and Pop kind of owners, their definition of “Updated” is outdated!
• -Some unsophisticated investors use different kinds of materials for different units.
• -Some quick-sellers use cheap hardware material only to maintain the outlook.

This being said, you’ll have to do the rehab on your own so it may suit your personal branding. Thus, assuming that all the units in the building would require rehab is a smarter way to analyze things.

Also, you need to be aware of the median market rates of an average unit. For instance, you may ask your Properties Manager to brief you about the up-to-date cost of rehabbing a 2 Beds, 1 Bathroom average-sized unit in the market. It’s best you clearly describe the type or degree of the rehab you want to your Properties Manager, along with your plans about exterior rehab. Better safe than sorry!

Another smart step before finalizing your rehab budget is to consult other investors and see how much are they paying for updating each unit. It is a crucial step as estimating a wrong rehab budget affects your offer price and thus might affect your deal as well!

When you are truly dedicated to the building you are buying, you would want each of the units to have the best quality of interior and exterior. Compromising quality for prices would only give you losses instead of profits, as you’ll have to redo the rehab in the very near future due to that!

Thus, it’s better to be farsighted while estimating rehab costs and to have a broad knowledge of the market rates. After all, it’s better to be conservative off the bat!