How to accurately gauge rehab costs

3 Replies

As a beginner wholesaler one of the key fundamentals of my role is estimating rehab costs. Being only vaguely familiar with the rehabbing business I could end up giving hit or miss estimates and this is something I'm attempting to avoid. When gauging on-the-fly rehab costs I see a couple of different methods (there are even multiple just here on BP). I may end up reaching out to contractors I've done business with but this not some I want to lean on and do for each job. I'm in the Flint area but will be branching out slightly further than where I'm based so I'm wondering if anybody on BP in Genesee County or Mid-Michigan is experienced at hitting rehab costs right on target with their own method that would be accurate for what contractors in this area are asking. Any tips would help...

This is really where experience plays a role. The more properties you view the more accurate you will be able to estimate the cost of rehab.

Perhaps partnering with an experienced rehabber will shortcut the learning time needed to estimate rehabs.

I would suggest possibly starting with some baseline numbers.  Now unless you have more than a few deals under your belt, you're not going to know every cost for every item.  I like to refer to the BP book from J Scott "The Book on Estimating Rehab Costs".  I use this book as a guide/reference and it seems to be fairly accurate for it's range of numbers.  From there you can create your own list to keep track of varying prices in your market.  

Hey Richard, congrats on starting out on wholesaling. You say that “As a beginner wholesaler one of the key fundamentals of my role is estimating rehab costs”. To that I would say; Really? I have been in this business for over 20 years and I can say that easily 50-60% of the wholesalers I have relationships with do not estimate anything. Those that do I never pay attention to anyway, at least the cost side of it. I appreciate it when a wholesaler will provide info on what “they” think needs to be done but I can do my own pricing…in fact, I always will even if they provide it.

As an investor/landlord/property manager I have my own crews, my own systems and processes. I fix up homes the way I am comfortable and that may be different then you might or anyone else. Just look at any thread on BP that asks something along the lines of "What is the average cost….". You will see all sorts of opinions based on everyone's individual experience. To a beginner, all the contradictory info can be difficult to navigate as one says $100 and another says $1,000.

To me, wholesaler has a specific meaning and maybe our definitions are different. I don’t look to my wholesalers to provide estimates, but some might. If you want to be that type of a wholesaler

My suggestions are:

  1. Have your friends who are familiar with rehab walk around the properties with you and you ask a ton of questions. Do not do this on your own. Whatever they need to be motivated, provide it. Maybe lunch, maybe need to pay them, but get a feel for what some standard costs are. Not just for the specific house but in general. After being in this business for 20 years I can do a quick walkthrough and get very close to my crews actual estimate. So ask them, not just what it costs to paint this house, but the average 1,000 SQFT house. Then how much for patching this or that. How much is a furnace, a furnace cert, a hot water tank. Your goal is to get as much general info out of them as possible. How much to replace a socket, a switch, a trap, a window. Most contractors can give you “general” pricing. The average window will cost me $300 to replace. If I see a “double” size window I count $600. So a simple window count and 1 minute later I know the rough costs of replacing windows. The only way to know this is to do it. And do a lot of it.
  2. Be honest with your customers. Clearly state this is an estimate. You are not a contractor, or a builder and the buyer need to do their own due diligence. If this is a service you are providing your customers, then you need to get your friends to do bids. I will be honest; this is where you may find yourself in trouble every now and again. Your friends may not care if they underbid…but you will. Finding a contractor that can bid and do quality work is like finding a unicorn : ) They are rare.
  3. Understand that you and your customer may have different ideas of what a renovation means. Rent ready? Flip ready? COO ready? This is why I never look at a wholesale prices. Not because they don't know what they are doing….as many do….simply because my idea of a renovation is different from theirs (more than likely).

All this said, this is only my opinion based on my experience and my definition of a wholesaler. If you are looking to be a turnkey operator or something more comprehensive, then this could be a different discussion.

Either way, being upfront with your clients telling them you are not a renovator but had contractors you know walk through the home and this is what they found is a good start. Just know your contractor friends will only put up with so much of this so tag along, ask a lot of questions and learn quickly….also, record those conversations as you will never remember the details or take notes fast enough. Most people prefer honesty so if you say hey I am new to the renovation side they won’t care. They care about your property more than anything else so as long as you have that locked up your good.