HOW TO ESTIMATE REHAB COST

5 Replies

When I first started investing in real estate my biggest concern was estimating rehab cost. I was concerned because rehab cost has so many moving parts and I thought the bigger the number the more likely I would have gotten finessed by a contractor. So my fears made me go into analysis paralysis . I wanted to know how much everything cost down to the screws and the mere hour cost of the GC. I almost lost my mind researching the internet and calling local hardware stores. 

Luckily, I realized there was a better way of estimating rehab cost. So I reached out to my PM and my mentor and asked for contractor recommendations. I got connected to 3 local reputable contractors . One contractor said rehab will cost $7k to rehab a typical 800 sqft unit. The 2nd contractor said $8-9k. The third contractor said more like $10k. Since I'm conservative I'll use $9k rehab when  cost when I am underwriting my deals.

The best part is it took me 1 hour to get this estimate (not hours). Last thing you guys is always put a 10% buffer on top of your rehab budget. I have done a $9k, $14k, an $34k rehabs and every time we have always gone over our budget. Consider using a 10% buffer because you will always go over your rehab budget. Trust me.

Originally posted by @Erickson Sainval :

Does the same technique hold for you currently in this market?

I am actually talking specifically in my market, but the principles will apply to other markets as well

@Erickson Sainval , the joys of multifamily, and particularly larger scale multifamily is two fold, regarding rehabs: a) you are doing the same finishes across all units.  b) the floorplans are almost always standardized, and so there isn't much variability between unit 1, 2, ... and on.  c) you are getting scale/discount pricing.

The more units you own, or the more units your manager controls, typically the better the pricing you are getting on materials and labor.  What Jason is seeing is consistent with budgets I see from other groups, as well.  These are also surface level rehab numbers; no walls are moving, plumbing/electrical being reworked, and does not include any exterior items.

@Jason Malabute I appreciate you asking this question. Currently saving up for down payments but trying to take reps daily in analyzing deals.

I’ll likely start leveraging your square footage to price rehab cost ratio and add the buffer on top of that so I feel more comfortable and having a piece of mind with the reduced risks.

Thanks!

Thanks for the helpful tips! Estimating rehab seems like it can be a handful, but it seems you have been figuring it out as you go! I really like J Scott's book Estimating Rehab Cost also.

Best of luck moving forward!