A contractor in my market told me the other day that he uses the following tool to roughly estimate rehab costs before he actually goes and itemizes everything needed on a rehab.
$10 sq/ft-carpet, paint, blinds, cosmetics, etc.
$20 sq/ft-carpet, paint, blinds, cosmetics, bathrooms, kitchen, etc.
$30 sq/ft-carpet, paint, blinds, cosmetics, bathrooms, kitchen, roof, cement work, etc.
So basically he grades the property 123 (abc) and the applies the cost per sq/ft to the total square footage of the property.
Does anyone else use a similar method to help them save time analyzing deals and focus on deals that look more appealing? I am interested to hear other variants and methods you are using as well.
Personally, I think that's a horrible way to estimate. Prices will depend on lots of things other than just square footage, like the type of materials you're using, where you're purchasing materials, what kind of contractors you're using, whether you're GCing the project or hiring subs, the location, the time of year, your negotiating skills, etc.
You could spend $20/sf just on appliances in some houses...
That seems extremely dangerous. If I do a water heater, furnace, A/C and a new electric service it costs me virtually the same regardless of the square footage on the house.
Your contractor may have enough experience in your market to make this kind of generalization, but when you get to the point of drawing up a CONTRACT I'd be very clear to specify the materials being used. You'll need to familiarize yourself with prices in order to do that. Just no escaping it.
You might find it helpful to look at 'The book on estimating' from BP, looking things up on Homewyse.com, and just wandering around Home Depot to get a range of prices. It might be helpful to decide on the type of property - A, B, or C that you're planning to buy beforehand as well. You don't have the freedom to decide on the grade of materials you use - the neighborhood you buy in and property class will dictate that. Estimating costs is just one of the reasons to decide the type of property you're interested in early on.
It sounds like your contractor may have been doing this for a while so you're lucky, but it's probably in your best interest to start learning this for yourself, too, today.
Best of luck.
I agree with @J Scott this way of doing things is asking for either underestimating a rehab, or overshooting and losing a deal. A 1500 SF 2 story house needs a roof, this will most likely cost ballpark $3000. A 1400 SF 1 story house With an attached 2 car garage and hip roof will most likely cost $7500-8000... this is just a very basic and very common example why just having a houses SF and trying to toss one number at it could end up getting you in trouble.
If your basic $/SF is to simply vet whether a house is initially a deal, so you can schedule to see it, then it has value. If you see photos, and it looks like at $25/SF it's a deal, then schedule the walk through. My advice is to throw the $/SF away after and use real numbers once you have the information.