Flipping cost per sqf in Maryland

25 Replies

Hi group,

I've been looking for flipping opportunities in Batimore county and certain areas in Baltimore city. Basically each time when I run my numbers in order to make an offer, it turns out the offer is way below the asking price. The quick math I do is ARV*65%-rehab cost. I'm usually confident about the ARV, however, I have been told that in Baltimore, I should use at least $60 per sqf. One of an experienced flippers from REI club says that nowadays it's easy to go above 70k on rehab. I was looking at a off-market deal, it is 1100 sqf, I brought my partener who is s flipper and builder with me to see the property, it is in a bad shape, because trash is everywhere, bugs cover the all floor. He is looking at 100k rehab and he is not sure once clean up everything and go to the surface there may be other hidden issues. Then after making an offer and negotiating , we decided to walk away.

      The frustration is that it is really that expensive in Batimore for the rehab cost, I know it really depends on each property.My question is if you are not able to see the proper or couldn't have a contractor come out each time when you go to a property, what is the cost per sqf you may use to estimate the rehab cost. Otherwise I may always make a ballpark offer and most likely I won't get any deal. Please help and Amy suggestions are sincerely appreciated. 

There's no way to estiimate a rehab cost without either having a lot of experience or actually seeing the property.  In Maryland, I've done cosmetic renovations for $20/sf, I've built new constructxion for $90/sf and I've done everything in between.  There is no one right answer that will fit every property.

Now, that said, if your contractor is telling you that it's a minimum of $60/sf, he's probably on the expensive side, as I've done many rehabs in Maryland for less than that.  

In addition, your 65%*ARV-rehab costs is a very conservative estimate. I would suggest learning how to evaluate using real numbers in addition to just doing back-of-the-envelope analysis with that formula (search for "Flip Formula" here on BP for more info).

100/sf is more of a CA price. 100k / 1100 sf. He might also scare you to throw you out of the deal, he will give a very high number so you will walk out, and he will go behind your back and make the deal. Ha! I would not pay anyone 60/sf for new flooring and new paint., that is 66k for paint and floor. :) Never trust anyone's rule of thumb when it comes to rehab costs. It could go 2k to 200k, well, in CA of course. 65% ARV is unrealistic, and if you bring an investor with you to look at it, they will simply scare you and steal the deal.

@J Scott do you have any info on estimating new builds? There is a property I saw near a flip I am doing that is in really rough shape (i.e.: foundation is completely falling apart and half of a exterior wall is completely gone) the bank is asking for 90k but it's been sitting for a long time and I'm sure it can go for cheaper...A new house in that area go for around 330-350. The only thing stopping me from doing anything is that 1) I don't have any experience on new construction (I actually just started flipping) and 2) I don't know how to even begin estimating a job like that... Could you shed some light on this? If you are interested I'd be glad to give you all the details on the place and just sit on the sidelines learning while you do your thing lol. (Oh forgot to mention, the place is in anne rinse like county near glen burnie/ Pasadena area).

@Lian Shi as J mentioned, it really varies if you do the SQ FT method. If you have a 1000sqft house that needs a full gut job it's not going to be the same sqft price as a 1000 sqft that only needs cosmetic work. I personally like to itemize everything as best as possible and then get a price for everything. For some things I already know the labor and material costs (i.e. I know my double hung windows are usually around $370 per window including install). If you itimeize everything you will have less room for error (however I always add a 10% contingency just because you never know).

Originally posted by @Gabriel G. :

@J Scott do you have any info on estimating new builds? There is a property I saw near a flip I am doing that is in really rough shape (i.e.: foundation is completely falling apart and half of a exterior wall is completely gone) the bank is asking for 90k but it's been sitting for a long time and I'm sure it can go for cheaper...A new house in that area go for around 330-350. The only thing stopping me from doing anything is that 1) I don't have any experience on new construction (I actually just started flipping) and 2) I don't know how to even begin estimating a job like that... Could you shed some light on this? If you are interested I'd be glad to give you all the details on the place and just sit on the sidelines learning while you do your thing lol. (Oh forgot to mention, the place is in anne rinse like county near glen burnie/ Pasadena area).

 I did a tremendously detailed website on a Maryland new build at TheScottPad.com a couple years ago, but unfortunately, the Wordpress theme I was using wasn't updated to support the most recent Wordpress update, and now the site looks like crap.  But, it had every detail of a new construction build in this area, including budgets, schedules, list of contractors, pictures, videos, etc.

Perhaps I can get it working again in the near future...

Anyway, about $90-100/sf is about right in this area for a basement, mid-level finishes, self-managed with good (i.e., larger company) contractors.

So, your project might be good for new construction if it's an 1100-1300 sf house that will resell for $330K. If you would need to built something larger to get that ARV, the numbers probably don't work...

Lian, 

J Scott wrote a series of two books, "The Book on Flipping Properties" and "The Book on Estimating Rehab Costs" that I bought here on BiggerPockets and highly recommend, he is very detailed and after reading them, I felt like I have a good handle on the process of rehabs.

J Scott,

In the Book on Estimating Rehab Costs, you detailed a fantastic spreadsheet with the costs you used for your deals at that point.  Now that you reside in the Baltimore area, have you updated it to reflect Baltimore prices you have found?  If so, I'm sure I'm not the only reader of yours who would love to see it.

Thank you very much for all your inputs. I have bought J Scott's the book "The book on flipping houses". However I got it on Amazon and didn't know that BP has it with the other book. I will definitely get the other one on estimating rehab cost ASAP. I totally agree with  @David that @J Scott may have much better idea about the prices in Baltimore area. 

The house we walked away asks for 80k, 1100sfq, another house on the same block just across the stress and a total rehab sold for 249k. My partner says it needs 100k.  We offered 65k and didn't work out. 

Is it a good deal or should I stick with my number? Thank you very much. 

@Lian,

If the house you are describing is still on the market, maybe take another contractor over there and see what he/she says it needs to get a 2nd opinion.  Is the $249k comp you are using also approx 1100sfq with the same # beds and baths that you're completed reno will have?

Hi David,

    Yes, it is the same layout and same sqf, the number of bedroom and bathroom. I think I will try to ask a contractor to go and see for a bit. 

    Thank you very much.

Originally posted by @J Scott :

 I did a tremendously detailed website on a Maryland new build at TheScottPad.com a couple years ago, but unfortunately, the Wordpress theme I was using wasn't updated to support the most recent Wordpress update, and now the site looks like crap.  But, it had every detail of a new construction build in this area, including budgets, schedules, list of contractors, pictures, videos, etc.

Perhaps I can get it working again in the near future...

Hi J. Scott, I reviewed the home page and would love if you could put the full site back up (with the budget information and all else). I am trying to get a great understanding of building requirements to effectively build a structure, and would like to see the contractors you used, since I am in the MD area as well. Please think about it, and let us know if you decide to set it back up. I love the information you provide and I'll be reading one of your books next month!!

Stephanie

Originally posted by @J Scott :
Originally posted by @Gabriel Garcia:

@J Scott do you have any info on estimating new builds? There is a property I saw near a flip I am doing that is in really rough shape (i.e.: foundation is completely falling apart and half of a exterior wall is completely gone) the bank is asking for 90k but it's been sitting for a long time and I'm sure it can go for cheaper...A new house in that area go for around 330-350. The only thing stopping me from doing anything is that 1) I don't have any experience on new construction (I actually just started flipping) and 2) I don't know how to even begin estimating a job like that... Could you shed some light on this? If you are interested I'd be glad to give you all the details on the place and just sit on the sidelines learning while you do your thing lol. (Oh forgot to mention, the place is in anne rinse like county near glen burnie/ Pasadena area).

 I did a tremendously detailed website on a Maryland new build at TheScottPad.com a couple years ago, but unfortunately, the Wordpress theme I was using wasn't updated to support the most recent Wordpress update, and now the site looks like crap.  But, it had every detail of a new construction build in this area, including budgets, schedules, list of contractors, pictures, videos, etc.

Perhaps I can get it working again in the near future...

Anyway, about $90-100/sf is about right in this area for a basement, mid-level finishes, self-managed with good (i.e., larger company) contractors.

So, your project might be good for new construction if it's an 1100-1300 sf house that will resell for $330K. If you would need to built something larger to get that ARV, the numbers probably don't work..

One important factor to keep in mind too is the cost of the "Impact Fees" that an individual county or jurisdiction may charge.  I think @J Scott's new build was in Howard County which I believe has a relatively low impact fee. I looked at doing a build in Montgomery County, and if the land was located in a school district where the high school was at more than 105% of capacity (which is virtually every school) I was going to be looking at some absurd number like $50,000 just in impact fees. This is part of the reason we actually see some very moderately priced land in some prime locations sitting unsold and undeveloped in MoCo.  Here is a link, might be outdated to information on the impact fees in each county.

http://mgaleg.maryland.gov/Pubs/BudgetFiscal/2013-Impact-Fees-excise-taxes.pdf

Originally posted by @Stephanie Dobbs :

Hi J. Scott, I reviewed the home page and would love if you could put the full site back up (with the budget information and all else). I am trying to get a great understanding of building requirements to effectively build a structure, and would like to see the contractors you used, since I am in the MD area as well. Please think about it, and let us know if you decide to set it back up. I love the information you provide and I'll be reading one of your books next month!!

 I think it's up and running again...

Greetings everyone I'm a newbie and ive been looking first at the cost of repairs before i estimate my offer. I use Lowes as my cost guide. So i determine what needs to be doneto the home with estimated labor to get my total rehab budget. I use home HomeAdvisor.com as well . So if it will cost me 32k to renovate my offer on a ARV property @175k would be 81k using the 65% rule. All in at 114k with 61k for estimated profit. Sometimes its even how much do you want to make of that project. So say you wanted to make only 30k then you can either up your offer or spend more on rehabbing. But that all depends on the market. I have not yet flipped a home as of yet but I will post as soon as i do. For me I rather have the funds before I make an offer.

Hi @Lian Shi this is a great topic. I recently got an accepted offer on a home for a multi family home and made the mistake of not having my contractor there. What I thought was a 10-15K rehab turned into a 30K rehab. I learned a very important lesson. 1. Before putting in an offer on a home have your contractor come out to the property to take a look with you sometimes they may see items for repair that you may not see with an untrained eye and 2. Do some more research to unearth an issues with the home ie: permits, apartments that may not be permitted etc. 

@Lian Shi I don't think it's worth the risk. 80k purchase + 100k rehab + 25k other costs. you're at 205k with 249 arv, 44k is your potential profit, maybe 40k on a conservative side. However, that extensive rehab can eat 20k easy it you don't know what you're doing. I price gut rehabs almost the same, 90-100/sf, that means everything is going out up to studs. But, if you have to remove things like floor joists, or foundation cracks, or raising the house to level it, or mold remediation, that's going to cost extra, and it is not going to be cheap. 40k is still a lot of buffer though.

@Lian Shi

Basically each time when I run my numbers in order to make an offer, it turns out the offer is way below the asking price.

I would consider that normal if you are looking for very good deals. As a general rule good deals are not found, they are negotiated.

Originally posted by @Lian Shi :

The house we walked away asks for 80k, 1100sfq, another house on the same block just across the stress and a total rehab sold for 249k. My partner says it needs 100k.  We offered 65k and didn't work out.  

I agree with  @David Barker questions and suggestions above. $100k rehab for an 1100 sq ft home seems excessive. I could come close to building new in Texas for that price, and @J Scott seems to indicate the same may be true in Maryland. Bugs and trash, while unpleasant, don't seem like they should drive the cost that much. Maybe wood destroying insects? Why is the rehab cost so high? Are you changing the layout? Adding bathrooms or moving plumbing fixtures?

Your comps and purchase price look solid. I'd hate to see you lose it because your rehab costs were way off. 

Originally posted by @Bill Hinshaw :
Originally posted by @Lian Shi:

The house we walked away asks for 80k, 1100sfq, another house on the same block just across the stress and a total rehab sold for 249k. My partner says it needs 100k.  We offered 65k and didn't work out.  

I agree with  @David Barker questions and suggestions above. $100k rehab for an 1100 sq ft home seems excessive. I could come close to building new in Texas for that price, and @J Scott seems to indicate the same may be true in Maryland. Bugs and trash, while unpleasant, don't seem like they should drive the cost that much. Maybe wood destroying insects? Why is the rehab cost so high? Are you changing the layout? Adding bathrooms or moving plumbing fixtures?

Your comps and purchase price look solid. I'd hate to see you lose it because your rehab costs were way off. 

 I lost the deal, I brought another contractor to see and he said he could do around 70k, but it's too late. It's a hard LEASON. 

   I should have looked for a second opinion earlier intead of being stuck in my numbers. 

Originally posted by @Ned Carey :

@Lian Shi

Basically each time when I run my numbers in order to make an offer, it turns out the offer is way below the asking price.

I would consider that normal if you are looking for very good deals. As a general rule good deals are not found, they are negotiated.

I have made a few offers on REO houses, none of them returned to me for best and higher offer, they all went with the better offer, which left me no position to negotiate. The offer is always cash offer,l with proof of funds, close in 25 days. Apparently, it is still not good enough for banks to negotiat with us. Not sure what's going on with all my efforts and energies.

@Lian Shi responding to your initial post, you answered your own question. You need to know costs in order to make an offer. If you aren't willing to learn about rehabbing costs, you wont be able to determine your costs to complete, and resulting max purchase price.
To ask for a "price per sq ft" to estimate a rehab is being lazy, and dangerously so. Spend the time and learn costs. How? Be resourceful, make phone calls, talk to people, look up material costs, read on how projects are completed and what materials are required to complete it. How much does a particular contractor get paid per hour? How many hours does a particular job take?