I am just getting started. Many years ago I spent 11 years as a real estate agent and a mortgage broker. I want to get started flipping. I started my LLC, got a bank account set up and put some money in it. It is time to look at properties. What I feel I am missing currently is my ability to estimate the rehab costs quickly. I picture that I am going to find something I like, do my own research as to an ARV, get a contractor to go look at it with me and wait for them to give me an estimate. I am thinking that by the time the contractor gives me the cost for the project the homes will many times already be sold and after a couple times of doing that the contractor will no longer want to go look at houses with me. For those of you investors that do not have a construction background, like me, how do you quickly estimate the costs? I think it may even be in my best interest to partner with an investor that has a construction background, but perhaps is lacking in the other skills needed to get deals done.
Great question.....and one that there never is a sure answer to and for me has just come from experience, but maybe I can help.
First, know your area and get an idea from various contractors what their full cosmetic rehabs costs, i.e., paint inside and out, flooring, new plumbing and light fixtures, new countertops, etc. Most of the experienced ones will be able to give you a ballpark per SF as a starting point, which may vary depending on price point and therefore level of finish out. For me, it's usually around $12-15 per SF for a mid range cosmetic rehab, but usually that can be cut some here and there like painting wood paneling in a room instead of tearing it out, texturing, then painting, just as an example. And of course your area may be different in terms of cost and also some jobs don't require a full cosmetic renovation, but most of mine have.
Then of course check the big ticket items like HVAC, roof, exterior siding/masonry repair, windows, interior sheetrock replacement, foundation and water heater and know approximately what it will cost to fix/replace each if warranted. For replacement costs on my average deal, HVAC is 3-5K, roof 5-6K, water heater $1K, and foundation can of course vary depending on severity and whether slab or pier and beam as examples.
Third, decide if there will be any additions, conversions or demolitions whether adding a bath, converting a room to something else, or removal of walls to open up the space. A good contractor should be able to give you a range on those as well.
Lastly, tally up your estimated costs and add at least 10% but probably 20% as a buffer because they never come in at or below it seems.
As an example my last flip of a 1500 SF house went as follows:
Full cosmetic rehab -$22K, added bath for the master - $5K, and some roof repair and siding replacement -$1K for a total of about $28K.
I'd budgeted for $25K ($30K max with my buffer) , but decided to add the 2nd bath which added about double the value of what I spent. Luckily no real surprises other than the spot roof repair which was minor.
It's definitely guesswork when acquiring deals quickly and on the fly, but can be at least well educated guesswork with some homework and the advice and knowledge of a good experienced contractor. After some experience, you will be able to inspect a house yourself and at least come up with a range.
I probably missed some points, but hope it helps some. Good luck!
Are you still sharing this spreadsheet? If so, I'd be interested. Thank you and God Bless.
Originally posted by @John R. Whittington :
@Curtis Thomas i just finished building a spreadsheet to help me with this. I used two sources to help me decide what items to list. The first was J Scott’s book on cost estimating, and the second was Paul Rsajain’s book “Real Estate Rehab Investing Bible”. I also consulted sites like Home Advisor.com, and checked out prices at the big box home supply stores. If you send me your email address I will sent you a copy of the spreadsheet. You can reach me at “John.r.whittington.com”.