Rental Property Investor · Scottsdale, AZ · Member since 2017 · 37 posts · 13 votes
Whats up BP!
I am brand new to all of this, I have watched countless BP podcasts, spent lots of time on the forums, and just finished The Book on Flipping Houses. I am about to start The Book on Estimating Rehab Costs and I understand the entire flipping process for the most part, but have one thing that I need clarified.
When I am looking for potential foreclosures to put an offer on, I am supposed to come up with a complete scope of work and estimation to determine whether or not the property is a good deal. Being my first deal, I feel like I would be quite lost when trying to figure out what needs to be done, let alone all the correct numbers. Would it be smart to have an inspector come through and give me a list of all the things that need to be done, then provide that list to a GC who would also walk through the property? The inspector would catch all the things the GC wouldn't and the GC could really compile a good SOW from the inspector's findings and then his own vision. At that point if the estimate I'm given fits my numbers it should be worthy of an offer, correct?
Would love some direction from some seasoned flippers, if I'm super far off please point me in the right direction!
The short answer is yes, you are responsible for coming up with your scope of work, and no to the rest of what you said.
The steps are generally: find a potential deal, visit it take lots of pictures and walk around using this checklist of rehab items from the files list, plug those numbers into your software of choice to see if you have a deal, offer (or pass), then inspections and only then get construction bids.
Your big problem that you have is that you need a general idea of cost before you make an offer.
I wrote this BiggerPockets blog post about this very problem
and to give away the lead, you have to get to the point of being able to analyze the costs yourself as fast as possible, and reading that book is a good start.
Flipper/Rehabber · Tampa, FL · Member since 2016 · 111 posts · 38 votes
8y
With some disclosure: I have yet to get a deal to go through, but I blame it mostly on a tight market and me not putting in enough offers. With that said:
I've been told by multiple people that I should not get an inspection done on the house by a GC or an Inspector prior to putting an offer on the house. But this is because the people advising me know that I have history in construction and I can spot major issues in the foundation and structure or if the house has a moisture problem. If you don't have those skills it might be well-advised to get a friend or family member who has history of construction and looking at houses with problems to walk around with you for a couple. My process usually goes like this: go look at the house, put an offer with an inspection/financing contingency and then if my offer gets accepted I'll hire a contractor do a walkthrough and submit a bid. Take that bid along with my estimation to the bank and sell them on my numbers.
I hope this helped and I wish you the best of luck! Most important: don't get down on yourself when offers don't go through!
The short answer is yes, you are responsible for coming up with your scope of work, and no to the rest of what you said.
The steps are generally: find a potential deal, visit it take lots of pictures and walk around using this checklist of rehab items from the files list, plug those numbers into your software of choice to see if you have a deal, offer (or pass), then inspections and only then get construction bids.
Your big problem that you have is that you need a general idea of cost before you make an offer.
I wrote this BiggerPockets blog post about this very problem
and to give away the lead, you have to get to the point of being able to analyze the costs yourself as fast as possible, and reading that book is a good start.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Make an offer based on what you observe, however that may be. IF you get an offer accepted then move fwd with due diligence and inspections. Once you get the inspections then get bids/est to repair (if the inspections turn out bad).
But, know this.... inspectors observe which means something may look fine and break the next time you use it. They are going give you generic descriptions and in short make you feel like the house is biggest POS ever. They should though break things out into major/minor concerns.
GCs also will give you bids.. but sometimes when you get into fixing a problem you find new problems. There are plenty of unknowns and it'd be almost impossible to have a fixed price unless it was something really simple. Budget around this and factor it into your offer.
Also, say you offer 100k, then inspection comes back bad and it's 25k worth of work from a GC... use that to negotiate with the sellers. Maybe they split it with you, then you shop it an get someone to do it for 15k.
Do not make repairs on a house until it closes and try to avoid having seller make repairs.
You need to define the scope of work (SOW) for the rehab work you want done by who ever. This is what you are going to hold someone accountable for because you will be paying for this this work. You will need to define what rehab work you will self-perform vs hire out.
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
@Hunter Harms You say you are dealing with the bank , so they are probably foreclosures . Banks generally sell as is . what you see is what you get . By the time you get a contractor to look at it , work you up some numbers and make an offer . The place will already have a contract on it if its a good deal
Developer · Boston, MA · Member since 2014 · 88 posts · 56 votes
8y
What I typically do is run a high-level analysis with my deal analysis spreadsheet to see if the deal even makes sense. For this I will estimate a rehab cost per sf, holding costs based on however many months I think it should take to complete and sell and lastly any soft costs. If it seems to make sense, then I will visit the property take pics, measurements, etc. Then I will look thru my numbers again and adjust accordingly due to the actual condition of the property. Then ill make the offer. If it is difficult to get into the house, I typically just make a conservative offer anyways and let the seller know that ill need to get in in order to confirm or adjust my offer.
J Scott's book on estimating rehab costs is a good starting point, but youll really want to figure out what your unit costs are in your area. Things like price per plumbing fixture, flooring install cost, tile, kitchen remodel, bath remodel, etc.
Investor · Asbury, NJ · Member since 2015 · 226 posts · 205 votes
8y
We get it under contract at a price that is based on how much work we think it needs, then walk through with our GC for a detailed scope of work and true pricing (which we are usually pretty close to). Our lender also sends their own inspector, so we do not hire a separate inspector, just go by what their inspector and our GC say.
Investor · Los Angeles, CA · Member since 2015 · 53 posts · 34 votes
8y
What Jennifer said. Get it under contract, and use your 5 day (or whatever it is in your state) inspection contingency to get a detailed SOW/budget with your GC. If the numbers don’t work, pull out of the contract.