My process for Estimating Rehab costs!
Hey Everyone,
I wanted to discuss rehab. It's a major part of RE investing and it is something every investor needs to be familiar with. You always want to know at least a general knowledge of each part of investing so when you hire someone for that job you can tell if they are truthfully knowledgable or not. Below is and outline of how I started understanding rehab, and what I have developed to do a standard estimate for any property I am looking at.
Step 1: The first piece is education. You need to learn what to look for when walking a property or looking at pictures. I personally this by becoming a RE Agent and scheduling myself private showings of distressed properties and walking them to see first hand what they look like. I scheduled about 10-20 a week. While walking the properties I took pics of anything new I saw or anything thing I had a question about. I then would take these pics to fellow investors, contractors I knew, and inspectors to ask what it was and what the repair could cost. Other ways you can increase your education is by attending rehab walkthrough in your areas, Ask another investor if you can shadow them through their properties, you can also ask a contractor if you can shadow them. Also joining local networking events for investing are great to find these potential contacts.
Step 2: After I started to get myself aquatinted with what distressed properties looked like I picked one property that had almost everything wrong with it and I called every contractor I could find and walked them through it with the same Scope Of Work. This way I got a bunch of estimates on numbers and got to take averages for my estimate sheet. Not every contractor would come through because I didn't own it but I still found a good amount. I called GC's, I called Subs, I called project managers, and I varied it from companies with remodeling in the name (which are usually more expensive) to companies that were just names (IE Bob's construction). I would ask questions every time I went through with a contractor. This way i could learn what I was looking at. The point of this step is to get someone who knows the numbers to tell you so you can get a record together.
Step 3: The next Item was to test myself so I found another property and did my own estimate. I walked the property with my estimate sheet and filled in everything I could. After I got my number I did the same process of getting all the contractors through and seeing how I matched up.
Step 4: The last step was to go through and buy a property and see if the numbers worked out after a rehab.
This is what I did to learn rehab. It was effective for me because I learn by being hands on and by visually seeing what I'm talking about. When I was creating my sheet I used EXCEL and put all the line items in under their category and set it up so that it could automatically fill in with the numbers. IE, say General Landscaping was $300 a day for a 4 man team and I believe it would take 3 days to clean out, the chart would set up to multiply $300 by 3 to get $900. I did this for each line item to make My life easier and faster when I estimate. I also set up things to carry over so say I have down for the electrician to put in an outlet rated for a Gas stove, it would carry into the materials to get how ever many stoves there are outlets for, so 3 outlets, 3 stoves. I did this for SQFT and anything else I could carry over. This made it even faster. I practiced analyzing properties with my sheet till I started seeing patterns in amounts it took to do certain amounts of work. This really helped me when I got in construction myself and now I have my own company and my detailed sheet has really helped.
(I wanted to attach my estimate sheet I came up with as an example but i couldn't find a way, If you know one please let me know, If you PM me I will send it over as well)
What has everyone else done to learn rehab and construction? What have you come up with to do your estimates?