New investor needing rehab estimate advice

33 Replies

I have spent the past 6 months or so educating myself on REI as much as possible primarily here on BP by listening to countless podcasts, posting tons on the forums, analyzing hypothetical deals, networking with other investors, realtors, wholesalers, lenders, contractors, etc.  Now I'm ready to take action and start looking for my first deal.

I am focused primarily on properties that I can BRRRR and/or flip. Obviously both of these strategies require rehabbing the property to force appreciation. My main concern is that I don't have any construction background and I have never rehabbed a property before so I don't have any real world experience regarding the costs associated in doing so.

Once I find a deal that looks promising on paper and I physically go walk the property with my realtor how am I supposed to determine a rehab estimate without any prior experience?  This is one of the most crucial numbers for my deal analysis. 

I plan to have an inspection done and have several GC's come bid on the job after I have a property under contract but I'm stuck on how I'm going to properly analyze a deal before then in order to make an offer without knowing a realistic rehab budget.

I know once I do a few deals I'll learn the associated rehab costs pretty quickly and have a much better understanding but how would you suggest I proceed on my first deal or two?  I don't want to mistakenly low ball the rehab because that could ultimately turn my entire deal upside down.  I also don't want to overshoot the rehab because that could kill my numbers and make me lose deals.

Hopefully some of you experienced rehabbers can chime in with suggestions and advice!

@Brian Garrett

You should definitely read J Scott's Book on Estimating Rehab Costs. It'll give you a general idea of what you should expect to pay for each portion of a rehab from flooring to roofs and everything in between. Just be aware that these costs are very general and are to be used as a rough guide since his costs in his area with his guys will not automatically relate to what you would pay in your area. 

Another way to get rough estimates on such repairs is HomeWyse.com, but as with the book, these costs are general and are only to be used as a guide. The point is to get familiar with what costs what so you can walk a property or look at pictures and get a ballpark figure of what needs to be done and how much it'll cost. 

Hope this helps. Good luck getting that 1st deal!

You can have contractors come meet you before you actually close. It’s harder to gain access to the house of course but even having just one contractor come out to meet you would be super beneficial. Just know that getting more bids later on may come in lower or higher so account for that...for a first time flip just go ahead and assume you’ll spend more than you think. And I second reading J Scott’s books on flipping houses and estimating rehab costs. They are must reads!

Originally posted by @Bob Okenwa :

@Brian Garrett

You should definitely read J Scott's Book on Estimating Rehab Costs. It'll give you a general idea of what you should expect to pay for each portion of a rehab from flooring to roofs and everything in between. Just be aware that these costs are very general and are to be used as a rough guide since his costs in his area with his guys will not automatically relate to what you would pay in your area. 

Another way to get rough estimates on such repairs is HomeWyse.com, but as with the book, these costs are general and are only to be used as a guide. The point is to get familiar with what costs what so you can walk a property or look at pictures and get a ballpark figure of what needs to be done and how much it'll cost. 

Hope this helps. Good luck getting that 1st deal!

I had a feeling that J. Scott's book and some other online resources would be brought up so let me mention that I've already read all of those during the past 6 months of my education phase.  I can continue to read until I'm blue in the face but that doesn't help me much when I have zero construction knowledge and/or experience.  This is the reason why I'm having a tough time figuring out how to move forwards and be able to properly analyze deals since the rehab estimate is such a critical part of the equation and I don't want to just be shooting in the dark.

Originally posted by @Kevin C. :

You can have contractors come meet you before you actually close. It’s harder to gain access to the house of course but even having just one contractor come out to meet you would be super beneficial. Just know that getting more bids later on may come in lower or higher so account for that...for a first time flip just go ahead and assume you’ll spend more than you think. And I second reading J Scott’s books on flipping houses and estimating rehab costs. They are must reads!

I was told that GC's typically don't like to come out and give bids on properties that are not even under contract.

I'd hate to have a potentially reputable GC come out to walk the property with me and then I don't get the deal and they feel that I wasted their time and that I was just a tire kicker.  That could potentially burn a bridge with that particular GC.

Most GCs won't come out to a property not under contract unless you compensate them for their time. Basically it comes down to "paying for education" in terms of getting GCs to a property not under contract and getting bids, or learning the costs on your own. Even without prior construction experience, it shouldn't take very long to pick up what's in J Scott's book. When I read the book, I first read through it for general information, then read it again and took notes on everything, then studied those notes like I had to be tested on the information. Did this for a few weeks and I felt very comfortable with analyzing rehabs. I was told by a person much smarter than myself that it's harder to learn something if you don't take notes. Since then, I take notes on every investing book I read and now have some pretty nice reference guides to fall back on.

Of course your experience with this will vary, but it is very attainable with the right amount of work and study. You'll get there eventually. It's all about repetition for me, but that may be a method that only works for me. Gotta find what works for you I suppose. 

In my market contractors are dying for the opportunity to earn business. Especially for investors who are more likely to do repeat business. As an incentive you can let them know that. Your market may be different but all you have to do is ask.

And also as a new investor, sure, maybe you won’t buy this particular house, but you are going to a house very soon. Contractors know people like to get multiple bids so they know going out for a bid is never a guarantee of business anyway.

I'm at the same stage as you are and here is what I'm doing. Every week I look for all the open houses in my target market and I check them against the county records to see which ones are investor flips which are usually only 1 or 2 per week. I go to the open house and walk the house and write up a scope of work of what the investor most likely did. when the listing agent starts asking about me thinking I'm an interested buyer I explain to them exactly what I'm doing and if they don't want to waste their time with me I understand. Every time so far the agent is interested and wants to talk about the house! I ask them about what feedback buyers are giving, if they think anything is missed or wrong with the house, if they think it's priced right and what price do they think would get them offers today. Now you have enough information to do your own estimate of the rehab costs (with Jay's books) and analyze the deal as if it were your own. if the deal makes sense you might be pretty close. if your analysis shows the other investor is making or losing $100k on a $350k house at the day 1 list price then something is probably off. Not a perfect method but it gives you the opportunity to network with agents while learning and practicing for that first one. It also shows you what level of rehab you need to be doing in your market. Best of luck on that first deal!
Originally posted by @Bob Okenwa :

Most GCs won't come out to a property not under contract unless you compensate them for their time. Basically it comes down to "paying for education" in terms of getting GCs to a property not under contract and getting bids, or learning the costs on your own. Even without prior construction experience, it shouldn't take very long to pick up what's in J Scott's book. When I read the book, I first read through it for general information, then read it again and took notes on everything, then studied those notes like I had to be tested on the information. Did this for a few weeks and I felt very comfortable with analyzing rehabs. I was told by a person much smarter than myself that it's harder to learn something if you don't take notes. Since then, I take notes on every investing book I read and now have some pretty nice reference guides to fall back on.

Of course your experience with this will vary, but it is very attainable with the right amount of work and study. You'll get there eventually. It's all about repetition for me, but that may be a method that only works for me. Gotta find what works for you I suppose. 

Even if I pay a GC to come walk a property with me before I make an offer that will most likely cause me to lose deals.  They are busy and deals go fast in this climate especially in my market where everybody has money and wants to invest.

I can only learn and absorb so much by reading.  Real world hands on experience is where I will get comfortable.

I'm just trying to minimize risk during that learning curve on the first few deals so I don't get burned.

I certainly won't let this stop me from moving forwards so I'll just have to figure out a way to make it work regardless.

Originally posted by @Kevin C. :

In my market contractors are dying for the opportunity to earn business. Especially for investors who are more likely to do repeat business. As an incentive you can let them know that. Your market may be different but all you have to do is ask.

And also as a new investor, sure, maybe you won’t buy this particular house, but you are going to a house very soon. Contractors know people like to get multiple bids so they know going out for a bid is never a guarantee of business anyway.

To my understanding they like going out to give bids on properties that are under contract not for people who in their eyes could potentially just be window shopping.  I know I'm a serious buyer but they don't know me from a hole in the wall.  I will certainly ask and try to get a GC to come see the property with me before making an offer I'm just afraid trying to coordinate that may cause me to lose deals. I need to be able to act fast.

Originally posted by @Gregory J. :
I'm at the same stage as you are and here is what I'm doing. Every week I look for all the open houses in my target market and I check them against the county records to see which ones are investor flips which are usually only 1 or 2 per week. I go to the open house and walk the house and write up a scope of work of what the investor most likely did. when the listing agent starts asking about me thinking I'm an interested buyer I explain to them exactly what I'm doing and if they don't want to waste their time with me I understand. Every time so far the agent is interested and wants to talk about the house! I ask them about what feedback buyers are giving, if they think anything is missed or wrong with the house, if they think it's priced right and what price do they think would get them offers today. Now you have enough information to do your own estimate of the rehab costs (with Jay's books) and analyze the deal as if it were your own. if the deal makes sense you might be pretty close. if your analysis shows the other investor is making or losing $100k on a $350k house at the day 1 list price then something is probably off. Not a perfect method but it gives you the opportunity to network with agents while learning and practicing for that first one. It also shows you what level of rehab you need to be doing in your market. Best of luck on that first deal!

Thanks for your response and input.  The problem is that I would have no idea what the costs are associated with the subject house to even create my own SOW.  I won't have an understanding of that until I've bought materials, paid contractors, labor, etc.  It almost sounds like I need to find a GC to partner with on my first few deals and with all of the horror stories I hear about GC's that doesn't sound very promising especially without having a relationship with one.

Howdy @Brian Garrett

I understand your frustration and concern. When I started doing BRRRR deals I had a basic understanding of construction. Here's what I did. Read and reread J Scott's books (taking notes as @Bob Okenwa did).  I made me a checklist from his book to use to walk the property with.  I also took his list to Lowe’s and Home Depot and created a price listing covering each item.  For Finishes I have three prices (Budget, Moderate, and High).  I use the price according to the class of property and neighborhood. 

All the properties I look at are distressed and need of obvious repairs.  When I started I wrote down every possible item I thought needed work.  I had some contractors walk the property with me a few times.  I paid them for their time.  $100 bucks for less than an hour.  But, it was money well spent for the education.  I could come up with the material costs but had no idea of what the labor costs and how long it would take for repairs.

Contractors are like lenders... you have to shop around to find one willing to work with you.  Remember they need you as much as you need them.  You can provide them with repeat business and referrals.

Originally posted by @John Leavelle :

Howdy @Brian Garrett

I understand your frustration and concern. When I started doing BRRRR deals I had a basic understanding of construction. Here's what I did. Read and reread J Scott's books (taking notes as @Bob Okenwa did).  I made me a checklist from his book to use to walk the property with.  I also took his list to Lowe’s and Home Depot and created a price listing covering each item.  For Finishes I have three prices (Budget, Moderate, and High).  I use the price according to the class of property and neighborhood. 

All the properties I look at are distressed and need of obvious repairs.  When I started I wrote down every possible item I thought needed work.  I had some contractors walk the property with me a few times.  I paid them for their time.  $100 bucks for less than an hour.  But, it was money well spent for the education.  I could come up with the material costs but had no idea of what the labor costs and how long it would take for repairs.

Contractors are like lenders... you have to shop around to find one willing to work with you.  Remember they need you as much as you need them.  You can provide them with repeat business and referrals.

Great insight John thank you. Would you mind sharing the checklist and/or price list you use? 

I agree with you about contractors and trying to align yourself with one who understand your process.

In the meantime I will follow your lead and go spend some time at Home Depot "window shopping" in order to at least familiarize myself with some general prices on flooring, paint, appliances, lighting, fixtures, etc.

@Brian Garrett

You should definitely be more concerned with underestimating the rehab costs. You say you don want to lose out on deals but if this is your first one I think it is better to wait it out another month and make sure you get a great deal. After that you will have experience under your belt and can make deals faster. I just think that you should make sure you absolutely don get burned on the first one because that will set you back for a good amount of time. You should also consider finding a really great deal that you can partner with an experienced investor on. Try posting that on the marketplace and go to local real estate meet ups to get the partner.

A few tips I have learned over time. Create a spread sheet that details out the work you expect to be done. I have a spreadsheet that details out all the possible work. From there I plug in prices/costs and it spits out a final value. When you hit a scope that you are not sure of, like siding, I have found that calling some of the bigger local companies can be beneficial. Explain exactly what you are doing (creating a budget for a house you will be making an offer on) and ask if they have a quick minute. I actually have had nothing but positive responses from this. I got very basic siding, window, roof, basement French drain system, electrical, pool removal, dumpster rental... pricing simply by being honest and asking about cost. Most can give you either a budget for the job if you describe it well enough, or a SF price they see as typical. Some websites like Angies list also lets you search for local companies and under the review section people post up their review, with the work that was done and the costs. It gives you a decent ballpark for what certain things might run.

Just make sure that anytime these companies are willing to speak with you and help you out, the day you have the keys, make them the first call for a proposal. It is always a good thing to give back to those who are willing to help you.

Originally posted by @Cody Evans :

@Brian Garrett

You should definitely be more concerned with underestimating the rehab costs. You say you don want to lose out on deals but if this is your first one I think it is better to wait it out another month and make sure you get a great deal. After that you will have experience under your belt and can make deals faster. I just think that you should make sure you absolutely don get burned on the first one because that will set you back for a good amount of time. You should also consider finding a really great deal that you can partner with an experienced investor on. Try posting that on the marketplace and go to local real estate meet ups to get the partner.

Thanks Cody I agree with you and I actually did make a post about partnering with an experienced local investor the other day. That would be ideal but if no partnership opportunity presents itself then I'm still prepared to move forwards on my own. I can continue to read until I'm blue in the face but the only way to get the ball rolling is to take action!

Originally posted by @Brian Pulaski :

A few tips I have learned over time. Create a spread sheet that details out the work you expect to be done. I have a spreadsheet that details out all the possible work. From there I plug in prices/costs and it spits out a final value. When you hit a scope that you are not sure of, like siding, I have found that calling some of the bigger local companies can be beneficial. Explain exactly what you are doing (creating a budget for a house you will be making an offer on) and ask if they have a quick minute. I actually have had nothing but positive responses from this. I got very basic siding, window, roof, basement French drain system, electrical, pool removal, dumpster rental... pricing simply by being honest and asking about cost. Most can give you either a budget for the job if you describe it well enough, or a SF price they see as typical. Some websites like Angies list also lets you search for local companies and under the review section people post up their review, with the work that was done and the costs. It gives you a decent ballpark for what certain things might run.

Just make sure that anytime these companies are willing to speak with you and help you out, the day you have the keys, make them the first call for a proposal. It is always a good thing to give back to those who are willing to help you.

Thanks for your suggestions. The problem is that I have zero construction or rehab knowledge/experience so I cannot create a scope of work on my own. I'll only know the obvious things that need to be rehabbed such as kitchen remodel, bathrooms, appliances, flooring, paint, lighting, fixtures, etc. Even those I'll have to take time to price out since I have no prior experience. Then there's all of the labor associated and all of the miscellaneous items that aren't the big obvious ones that I won't have any idea about. I think I'll have to just pay a contractor to walk the property with me prior to making an offer at least for my first few deals until I gain that understanding of all the associated costs. The problem with that is I won't be able to analyze a deal properly until the contractor has walked it with me and gave me a rehab estimate so that really slows things down since the rehab estimate is such a critical part when analyzing a deal particularly for the BRRRR strategy. I'd hate to waste tons of time and money paying contractors to walk properties I don't even have under contract just to find out if it's even a deal to begin with.

I'd suggest calling some contractors in your area and explain what you're trying to do and possibly trying to offer a small fee for houses that are not yet under contract in exchange for a estimate. I'd consider this money well spent towards learning estimation costs. I've got a house under contract now and have met various contractors within the past two weeks and explained to them upfront that I didn't have access to the interior and I've yet to have one complaint. 

Originally posted by @Joshua Tobin :

I'd suggest calling some contractors in your area and explain what you're trying to do and possibly trying to offer a small fee for houses that are not yet under contract in exchange for a estimate. I'd consider this money well spent towards learning estimation costs. I've got a house under contract now and have met various contractors within the past two weeks and explained to them upfront that I didn't have access to the interior and I've yet to have one complaint. 

Yeah that's what it looks like I'm going to have to do. Appreciate your input.

Brian, I’m a contractor that have worked with numerous investors. I only go to properties that are under contract, I don’t have time to go house hunting. Once the property is under contract I am willing to assist with the estimate process with intentions of making the deal happen, this way it’s a win win for all parties. If the repairs come back high then these figures are presented to the seller to negotiate a little better deal. Another approach is getting a home inspection from a reputable company, they usually give you broad estimates to make the house FHA finance ready. Home inspections are not into the cosmetics part, they just need to confirm the current functionality. Hope this helps. Good luck!

@Brian Garrett I'm in the same position as you: I'm working on my first flip.  

Don't let not knowing the EXACT cost prevent you from making OFFERS.  

I recently walked away from a house I had under contract because the walk through revealed problems that killed the comps. But before we discovered that, we did a brief look at the property and came up with a rough "this looks like $xx,000 to Xx,000 worth of rehab". I then added 15% to the high side, and plugged it into my numbers. The initial numbers worked, so I put in an offer, got it under contract, and got a contractor out there to get an actual bid on it. 

From reading your posts, you seem to have talked yourself into the corner of "I don't know the repair so I can't do anything" stage of analysis paralysis.  If you have time (houses are going under contract in under 7 days in my market, so I know the time crunch) to get a contractor out to the property before you make an offer (if you have to pay them, pay them! tuition is worth it!) do it, but don't let that stop you if you can't.  Just make sure you have an inspection contingency and you're good.

@John Leavelle  GREAT advice on the spreadsheet. I'll have to re-read his book and make one of my own!  I'd love to use yours as a template, if you're willing.

@Kevin C. Contracts are booked for months out here! Consider yourself lucky!

(817) 366-3928
Originally posted by @Nelson Hernandez :

Brian, I'm a contractor that have worked with numerous investors. I only go to properties that are under contract, I don't have time to go house hunting. Once the property is under contract I am willing to assist with the estimate process with intentions of making the deal happen, this way it's a win win for all parties. If the repairs come back high then these figures are presented to the seller to negotiate a little better deal. Another approach is getting a home inspection from a reputable company, they usually give you broad estimates to make the house FHA finance ready. Home inspections are not into the cosmetics part, they just need to confirm the current functionality. Hope this helps. Good luck!

 Thanks for your input Nelson that's pretty much what I expected. I'll have to find a GC who is aligned with my goals.

Originally posted by @Robert Freeborn :

@Brian Garrett I'm in the same position as you: I'm working on my first flip.  

Don't let not knowing the EXACT cost prevent you from making OFFERS.  

I recently walked away from a house I had under contract because the walk through revealed problems that killed the comps. But before we discovered that, we did a brief look at the property and came up with a rough "this looks like $xx,000 to Xx,000 worth of rehab". I then added 15% to the high side, and plugged it into my numbers. The initial numbers worked, so I put in an offer, got it under contract, and got a contractor out there to get an actual bid on it. 

From reading your posts, you seem to have talked yourself into the corner of "I don't know the repair so I can't do anything" stage of analysis paralysis.  If you have time (houses are going under contract in under 7 days in my market, so I know the time crunch) to get a contractor out to the property before you make an offer (if you have to pay them, pay them! tuition is worth it!) do it, but don't let that stop you if you can't.  Just make sure you have an inspection contingency and you're good.

@John Leavelle  GREAT advice on the spreadsheet. I'll have to re-read his book and make one of my own!  I'd love to use yours as a template, if you're willing.

@Kevin C. Contracts are booked for months out here! Consider yourself lucky!

Great insight Robert. I'm definitely not stuck in a "I can't do anything stage" but I do understand your overall perspective.

@Brian Garrett and @Robert Freeborn

You can find the spreadsheet of the basic version of J Scott's Worksheet combined with a Home Depot SKU worksheet here on BP under TOOLS/FilePlace/Spreadsheets, page 9, Provided by Andy Bankston Titled "Walk-Thru Rehab Analysis With SKU".  Here's the link to that page https://www.biggerpockets.com/files/spreadsheets/c...

Click on the File Topic line and the BP download page will pop up.  Just download the Excel file from there.  Be sure to copy/read Andy's comments.  If the link does not work just go thru the menu to find it.  If you haven't browsed through FilePlace yet -- Do so.  You can find a lot of helpful stuff other members have provided for you.

I just modified it (as many others have) for my personal preferences.

Hope this helps.

Originally posted by @Brian Garrett :
Originally posted by @Joshua Tobin:

I'd suggest calling some contractors in your area and explain what you're trying to do and possibly trying to offer a small fee for houses that are not yet under contract in exchange for a estimate. I'd consider this money well spent towards learning estimation costs. I've got a house under contract now and have met various contractors within the past two weeks and explained to them upfront that I didn't have access to the interior and I've yet to have one complaint. 

Yeah that's what it looks like I'm going to have to do. Appreciate your input.

Pre-offer your options are generally: 1) pay for an estimate, 2) call in a favor, or 3) do it yourself. Around my parts you can expect to pay $300 for something like that, so number 1 can get expensive if you do many offers. 2 is not scalable as you run out of favors, and 3 requires some level of education and/or experience. You will definitely want to get to 3 as fast as possible.

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