I am looking to make an offer on a 4 unit property that needs a lot of work. This will be my first investment property, and I have zero experience with estimating the cost of renovations. I've asked my lender as well as an FHA Consultant for contractor referrals and they both weren't comfortable providing a referral until I put an offer in and have some sort of contingent contract in place.
I live in NJ and it is very competitive in my target market. The last thing I want to do is put an offer in, guesstimating what the rehab costs will be, only to have to go back later, after a contract is in place to revise my offer. I don't think that is fair to the Seller (I would be upset if someone were to pull that on me, especially if I've had several other offers to choose from at the time, which is definitely the case).
Also, from a contractors perspective, I get it, it could be a huge waste of time going from place to place, providing estimates on jobs where 99% won't come to fruition. But I also feel as a contractor, it is kind of in your best interest to be getting out there and putting bids in whenever possible.
So what comes first, the offer, or the contractor estimate? What is everyone elses experiences here when working with contractors on purchases?
Hi @Justin McElroy . Phew!!! It's like the question, what came first, the chicken or the egg, right? First, let me congratulate you about getting your hands dirty, Not everybody is courageous enough to take action.
I understand your reluctance to put real estate under contract if you don't know your numbers. 4 units is still considered as residential and you should be good to go with residential numbers (although I would be very precise in this case). Could you find an experienced investor in your area who would be ok to help you out, even if you have to split the profit? Or could you at least make a list of the needed repairs and submit it to someone with experience?
I would also recommend that you spend time at Lowe's, Home Depot and such and start to look into all the material's prices. Don't forget the small stuff. It will allow you to get an idea of what things cost. It will not be totally right, but close enough.
You could also get to know a GC and offer to pay him for an estimate. Be careful though, all GC's are not, how to put it... straight in their boots. Most of them are good people, but some could take advantage of your lack of knowledge. Once again, get in touch with people who have experience and can recommend someone.
Over time, you'll gain experience and you will be able to estimate the repair costs without help. There is also a good book about it in Bigger Pockets. Visit their store and you'll find it. (the title escapes me now, but it is obvious when you read it).
Good luck and success!
The age old question, or at least one of them. In a perfect world, you should learn how to estimate rehab numbers accurately before you start investing. Relying on others when you are new can end up in disaster unless you have a trusted source to do it for you.
If you have the money, perhaps a better option is to partner with an experienced Investor, they provide the team and know how to make accurate rehab estimates as well as valuations, you bring the money and learn by watching and asking.
If it is a good deal it will be gone before you get bids together. Best case is to take someone experienced with you (or even a good realtor that is experienced with investment property and renovations) for the initial walk through to help make sure you are in the ballpark on your initial offer. Use the opportunity as a chance to gain experience. Walk the property, make an offer and learn the process. You may get your first deal or you may make 10 offers before you get one. You are on the right track, step out there and take action. Don’t worry about making someone mad or messing up! Go get’em!
I suggest paying for an education. Here me out. When I first started, I paid a contractor to go with me to several distressed properties so I could learn how to estimate repairs. I knew I was likely to get the these properties, but that didn't matter. All I wanted was the education.
Find a reputable contractor or 2 two, pay them by the hour and write down everything. Visit as many properties as you can and ask as many questions as possible. Get prices for specific projects, general sqft prices, linear foot prices and sqaure prices. You may even be able to get general sqft prices for different levels of rehabing. For instance, I know I can estimate around 20 per sqft of the whole house for a general rehab that includes paint, floors, new bathrooms, kichens, etc. From there I subtract and add anything that would not normally be included in that price. Don't use my prices though, yours will probably be very different.
Check out these properties yourself, before dragging them out there and make sure you have a good variety of repairs and modifications to get prices for.
Finally, I would find a contractor that has experience working with house flippers or investors. Make sure they know that you plan on investing in a lot of properties, and if you are happy with their work, you will keep using them.
Appreciate all of the input! These are all great idea - Dean I like the idea of paying for some education. I was just able to make it out to my first meetup last night and was able to make some connections, so I'll be thinking of all of this when meeting with other investors/contractors. Thanks again! Enjoy your weekends!
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