While looking for potential investments, I've tended to steer away from analyzing deals that require heavy rehab simply because I am not sure how to estimate rehab costs. I've watched the BiggerPockets video going over how to estimate ARV (based on comps of your post-rehab property, etc.), but how do I know how much I actually would need to put into a property?
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
4y
@Christian Sabatini, this market is incredibly hard. ARVs, talk to realtors, and factor in quality of area. Mortgage rate increases tend to have a bigger impact on lower end properties where the buyer pool is going to be more focused on monthly payments.
Getting rehab costs: best option is to get a contractor to walk property with you and quote job. J. Scott's book gives some decent cost estimates, but labor and materials are all over the place right now (i.e. we finished a gut rehab in March, and our current rehab is now coming in anywhere from same to 50% more for various quotes for similar scope of work). I would also price shop finish materials at Home Depot, Lowes, tile stores, cabinet suppliers, etc, because your design decisions can greatly impact overall budget, i.e. $2 psf tile or $30 psf tile.
I use a "cheat sheet" that has interior and exterior price points to help me calculate the repair cost. Additionally, if I'm able to I bring a contractor with me to the property to analyze the deal it's very helpful.
I use a "cheat sheet" that has interior and exterior price points to help me calculate the repair cost. Additionally, if I'm able to I bring a contractor with me to the property to analyze the deal it's very helpful.
Thank you so much for the input, Sarah! Additionally, where would I be able to access a “cheat sheet” myself?
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
4y
@Christian Sabatini, this market is incredibly hard. ARVs, talk to realtors, and factor in quality of area. Mortgage rate increases tend to have a bigger impact on lower end properties where the buyer pool is going to be more focused on monthly payments.
Getting rehab costs: best option is to get a contractor to walk property with you and quote job. J. Scott's book gives some decent cost estimates, but labor and materials are all over the place right now (i.e. we finished a gut rehab in March, and our current rehab is now coming in anywhere from same to 50% more for various quotes for similar scope of work). I would also price shop finish materials at Home Depot, Lowes, tile stores, cabinet suppliers, etc, because your design decisions can greatly impact overall budget, i.e. $2 psf tile or $30 psf tile.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
4y
For estimating ARV, you should have an experienced agent on your team who can run comps for you and give you a price range for your ARV based on your future repairs/SOW. ( scope of work)
Estimating ARV's is not just math and science but also an art form as it takes experience, knowledge of your local market conditions and the ability to place a value on specific improvements, features and amenities of your subject property vs the comps. It will be rare to find a model match comp with the same level of finishes within 3-6 months so many adjustments to each comp need to be made (similar to how an appraiser would value a property) to come up with an accurate ARV.
IGNORE Zestimates or other websites computer generated values as they can be off by 10%-50% and rarely be within 5%.