Information on how to determine rehab costs

[Michael McCrimon]

Hey everyone! I am still new to the real estate world. I have been reading a lot of books and listening to BP podcasts all the time. I want to get into buy in holds eventually but I heard flipping in the beginning is a good way to build capital. So I was wondering other resources that I can determine estimating rehab costs on a property? I have about $15,000 saved right now, but want to be able to estimate rehab costs if I was analyzing a deal. Thanks for your help in advance 

[David Robertson]

Hi Michael,

I would start by reading JScott's Book on Estimating Rehab Costs to learn the basics. The pricing is outdated, but it will give you a general understanding of how to estimate the major repair categories.

Otherwise, this question get's asked ALOT, so I have created boilerplate list of the process of how you can learn to estimate costs. It's a process that takes time and experience:

#1 Read the Book on Estimating Rehab Costs

J Scott discusses the fundamentals of budgeting and pricing rehab costs and reveals the steps, tips, and tricks he uses to accurately estimate costs for 25 common trade categories and hundreds of repairs.

#2 Walk Through Distressed Properties and Spy on the Competition

Walk through a couple of rehabs that a local real estate investor has completed in your local market and study the types of repairs they made and the level of finishes they installed in the property.

Spying on the competition and understanding what buyers are looking for will help you determine what type of repairs and level of finishes you need to install in your own properties.

#3 Explore Lowes and Home Depot to Learn About Material Pricing

Walkthrough through Lowes and Home Depot (or their websites) and look at finishes materials and fixtures that you will consider using in your rehab projects. This will help you get a better idea of what tile, hardwood, carpet, plumbing fixtures and light fixtures costs for your rehabs.

#4 Contact Local Contractors For Pricing

Labor pricing is a little harder to accurately predict, because contractors will all charge different prices and pricing can vary substantially from contractor-to-contractor.

To familiarize yourself with labor pricing, you could pay a GC $200 to $300 to walk through a few properties and provide budget pricing for typical repairs.

#5 Build Out Your Database in a Spreadsheet

Once you start to get a better understanding of Labor and Material costs you will want to store this data into a spreadsheet or software that you can use to help you streamline the estimating process.

#6 Practice, Practice, Practice

Walk through distressed fixer-upper properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.

This will help you get acquainted with common rehab repairs, rehab costs & estimating terminology.

#7 Get Your First Rehab Project!

You can practice all you want, but ultimately you will learn the most about estimating rehab costs by actually rehabbing a house. Getting your first rehab project will require you to create a SOW, talk to contractors, compare and review bid proposals, review budgets, & make countless trips to Home Depot.

You will inevitably make mistakes and underestimate things, but you will learn 90% of what you know by just doing your first rehab!

#8 Learn from Your Experience!

Once you complete your first house flip project, take some time to review your actual costs that you spent on the project and compare it to your initial estimates and budgets.

Reviewing your final numbers will help you gain a better understanding of how much you actually spent in each Category and identify areas where you underestimated cost and blew your budget.

When you buy your next house flip project you will have this valuable learning experience to help you build a more accurate estimate!

As your continue to do more and more houses, you'll gradually gain more experience and be able to develop accurate estimates quickly and confidently!