Hello, I am not a flipper and don't pretend to be.
I was wondering though those that do, and have experience with it if there are any formulas you may use? or a rule of thumb on how much money needs to be injected into a home to bring an outdated home to sparkling brand new (this wouldn't include foundation or structural issues)?
I recently did a remodel on a condo to turn it into an airbnb. Since I am not handy nor do I deal in major quantity of flips I would think my costs on doing work has to be much higher than you flippers out there. I remodled a small spot (650 sq ft), and took remodeling costs divided by total purchase price of the place and came up with 13%. Now I am not sure if this is a great number or not. I would love to hear some feedback from you flippers out there.
I did the work in Scottsdale, Arizona. I'm sure every market has different labor and material costs so this won't be comparing apples to apples, but would greatly appreciate any feedback. Really appreciate it and thanks in advance for reading and taking time to answer my questions.
@Brandon Miles for cosmetic flips, we use $85/sqft; For full gut to spanking new, we use $120/sqft for rehab budget.
All the best!
Shawn, Thank you so much for the info.
@Brandon Miles Grab J Scott's book on Estimating Rehab costs. It will give you some good guidelines for quick and dirty calculations. I've also used Homewyse to peg the high/low for an individual sub. Just make sure the numbers on backend work if you are renting it / flipping it etc.
@Shawn Ward that is awesome info social justice warrior
I mean Shawn ward
@ Whitney Hutten thank you for the advice. I do like how J Scott is such a numbers guy. I will def check it out.
Originally posted by @Brandon Miles :
I remodled a small spot (650 sq ft), and took remodeling costs divided by total purchase price of the place and came up with 13%. Now I am not sure if this is a great number or not. I would love to hear some feedback from you flippers out there.
Instead of dividing the remodeling costs by the purchase price, you should be dividing the remodeling costs by the square footage to calculate a cost per SF.
So for example, if your remodel costs totaled $50k and your remodel was 1,000 sf, that would be $50 per sf.
When calculating the cost per SF, it's important to consider the scope of work and types of areas that you are remodeling. A kitchen and or bathroom remodel is going to be much more expensive than a bedroom remodel.
Using a Cost per SF can be a handy quick rule of thumb for estimating rehab costs, but only if you understand the Scope of Work, repairs, materials, level of finishes, etc that are included.
Shawn does very high-end luxury rehabs in Los Angeles (correct me if I'm wrong), so his $ per SF values are substantially higher than what I am paying for my average grade rehabs here in suburban KC. For me, a self-managed, cosmetic rehab (exterior/interior paint, flooring, new fixtures) in KC is around $15 to $20/sf. For a full rehab (new roof, new windows, new wiring, new plumbing, new kitchens, new bathrooms, & finishes throughout), I've been around $35 to $50/sf.
So everyone's formula is going to be dramatically different depending on their market, property values, level of finishes, contractors, etc.
Before you start to use someone else's quick rule of thumb or formula, you really need to understand the basics of estimating costs and putting together a scope of work.
Here is what I would recommend:
#1 Read the Book on Estimating Rehab Costs
JScott's 'The Book on Estimating Rehab Costs' is a great resource for new rehabbers to learn how to Estimate Repair Costs on 25 common rehab repairs.
#2 Explore Lowes and Home Depot to Learn About Material Pricing
Take a tour through Lowes and Home Depot (or their websites) and look at finishes materials and fixtures that you will consider using in your rehab projects. This will help you get a better idea of what tile, hardwood, carpet, plumbing fixtures and light fixtures costs for your rehabs.
#3 Contact Local Contractors for Pricing
Call local Subcontractors and get budget pricing for common repairs on your typical rehab project.
For example, call a roofer and ask what their average cost per Square of Architectural Asphalt Shingle Roofing would be on a 1,500 sf house, with a 6/12 pitch.
Note: Some contractors will be reluctant to share pricing without seeing the property, but tell them you are just looking for a rough budget number you can use on future projects.
#4 Compile Your Prices into a Spreadsheet or Estimating Software
Once you start to get a better understanding of Labor and Material costs you will want to store this data into a spreadsheet or software that you can use to help you streamline the estimating process.
The Book on Estimating Rehab Costs comes with a spreadsheet that you can use to help you populate your own database of labor pricing and material pricing. Or you can download my estimating templates I have in my Biggerpockets fileplace:
There are other Estimating Softwares available as well which can help you manage the Estimating process as well...
#5 Practice, Practice, Practice
Walkthrough potential rehab properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.
Once you get some experience estimating costs or get a few rehabs under your belt, you will be able derive your own 'formula' that you can use to quickly estimate costs and analyze deals.
This process will give you a better understanding of what repairs and costs are actually included in your formulas.
@ David Robertson I greatly appreciate the thorough explanation. I will certainly take a look at the book.