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10, 20, 30 Rule of Thumb Method

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  • Posts 32
  • Votes 3

Bruce Gibson

posted about 1 year ago

I recently stumbled upon something a contractor said on Facebook. He was stating to find the potential repair cost you must multiple the square foot by 10, 20, or 30 ($10 sq ft for a basic facelift, $20 sq ft for a moderate renovation, and $30 sq ft for a full gut rehab). I wanted to know how accurate this is and how it can be adjusted for my current market in Mississippi

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  • Posts 659
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David Robertson
Flipper/Rehabber from Kansas City, MO

replied about 1 year ago

No.  

The scary thing about these 'quick rules of thumb' provided by random people on Facebook is that newbies use them without understanding what's included.  

What scope of work is included in the light, moderate or full gut?  Did the contractor provide a detailed breakdown of the scope that is included in each of those scenarios?  What grade of materials?  What level of finishes?  

You can get yourself in a lot of trouble using these rules of thumb.  

The $30/sf for the 'full gut' is the most expensive value the contractor provided which implies to a newbie that it's a 'worst case scenario'.

So newbies will make an offer using the $30/sf thinking they have everything covered because they used the 'worst case scenario' rule of thumb.

Once the newbie gets the property under contract and invites the Facebook contractor out to bid the project, the Facebook Contractor's bid is $50/sf+ because the property needed a new roof, new windows, new HVAC, new electrical, & had foundation issues that weren't included in the original 'full gut' scenario.

So again, I ask do you really know what scope of work included in these quick rules of thumb?

The random Facebook contractor may be correct (under certain circumstances), but these rules cannot be applied globally because every single house and project is different. Therefore the only accurate way of estimating rehab costs is to put together an itemized list of all of the repairs that are needed for that particular project. 

Here is the process I recommend for learning how to estimate rehab costs instead of using quick rules of thumb:

#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.

https://www.biggerpockets.com/store/the-complete-g...

#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 Labor 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:

Simple Estimate Spreadsheet

Detailed Estimating Spreadsheet

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.

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  • Posts 32
  • Votes 3

Bruce Gibson

replied about 1 year ago

@David Robertson Thank you for all the information. My team and I are wholesalers who want to provide the best service and most accurate numbers to our buyers, but we don’t want to waste a contractor’s time having him/her come out to all of the properties we view

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  • Posts 659
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David Robertson
Flipper/Rehabber from Kansas City, MO

replied about 1 year ago
Originally posted by @Bruce Gibson :

@David Robertson Thank you for all the information. My team and I are wholesalers who want to provide the best service and most accurate numbers to our buyers, but we don’t want to waste a contractor’s time having him/her come out to all of the properties we view

Yep, you don't want to waste a contractor's time on every property which is exactly why you need to learn the basics of inspecting properties and estimating rehab costs so you can do it yourself.

If you (or someone on your team) doesn't know how to estimate rehab costs, how are you going to provide the 'best service' and 'most accurate numbers'?

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  • Posts 32
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Bruce Gibson

replied about 1 year ago

@David Robertson We’ll execute the methods in the book you’ve referenced and get the information passed to our buyers

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  • Posts 106
  • Votes 42

Pat Heidingsfelder
Real Estate Broker from Biloxi, MS

replied about 1 year ago

@David Robertson is exactly right.  There are some tactics in the book on rehabbing that are great when it comes to finding and compensating local contractors.

Have you wholesaled to any flippers/rehabbers? If you have a great deal and a good buyer that trusts you, maybe offer to transfer the contract for a minimal (or zero) assignment fee in return for watching/learning about the process.  This will take a very patient and willing buyer so build some relationships!

Join a local REIA. We regularly discuss rehabs and pricing at our MS Coast REIA meetings. I've done a couple of deep dives into the numbers of my personal projects at the meetings.

If you're anywhere near the Coast (Biloxi/Gulfport) let's connect!

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  • Posts 32
  • Votes 3

Bruce Gibson

replied about 1 year ago

@Pat Heidingsfelder I have some contacts of flippers and contractors. I’ll contact them today. I’m in Hattiesburg; when are your meetings on the coast

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  • Posts 54
  • Votes 38

Gabe Waldrep
Real Estate Consultant from Argyle, TX

replied about 1 year ago

Great answer by @David Robertson . You don't want to be the wholesaler who is known for being way off on his rehab estimates. If you consistently underestimate your rehab numbers, then you are overpaying for your deals, which means you will have trouble selling your deals. Learn to provide accurate assessments of properties so that your end buyers will trust you when you send them deals. If your numbers are good enough and you build the trust, you will develop buyers who will buy sight-unseen because you have proven yourself as someone who does the proper homework and is knowledgeable in your field. 

This industry is full of fly-by-nighters who use general estimates and provide terrible deals. Be better than the rest. It will pay off in the end.

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  • Posts 673
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Susan Maneck
Investor from Jackson, Mississippi

replied about 1 year ago

Hey, I buy houses at $25 a square foot in Mississippi. If I think they need more than 5K in repairs, I don't buy them. 

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  • Posts 22
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Cameron Carter
Real Estate Attorney and Investor from Scottsdale, Arizona

replied about 1 year ago

@Bruce Gibson

You will be better off to spend some time with the contractors learning to put accurate pricing on renovations if you want to sell/flip your homes to investors. Isn’t your job to convince them that they can buy your deal and make money?

Otherwise the experienced investors you want to be working with will quickly discover your pricing doesn’t pencil, and they will choose to not waste their time looking at your deals.

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Will Barnard (Moderator) -
Developer from Santa Clarita, CA

replied about 1 year ago

I get so frustrated when I continue to hear this garbage advice regurgitated over and over again by people who have no clue what they are talking about. There ARE NO SHORT CUTS TO ESTIMATING REHAB BUDGETS! Period.

Using some price per SF is ridiculous. Now, if you are doing new construction, then yes, an average price per SF for the size of your home in that area will get you darn close, but on a rehab, only twice a day which is the only two times a broken clock is correct.

Think about it, two identical houses with same square footage on same street, yet one needs new roof, new plumbing, and foundation repairs while the other does not. Both will have an entirely different price per SF rehab budget!

There is only one way to accurately and properly estimate rehab budgets and several above laid that out. You need to learn how to do it yourself and it takes time and practice.

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  • Posts 32
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Bruce Gibson

replied about 1 year ago

@Will Barnard Relax for a second. I was only curious. I haven’t seen anything like this information around. I only wanted to know how someone more experienced may/may not use this method and how it actually works on a more broken down spectrum

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Will Barnard (Moderator) -
Developer from Santa Clarita, CA

replied about 1 year ago
Originally posted by @Bruce Gibson :

@Will Barnard Relax for a second. I was only curious. I haven’t seen anything like this information around. I only wanted to know how someone more experienced may/may not use this method and how it actually works on a more broken down spectrum

Relaxing is for after work, I'm just passionate about the business and providing you the true information you need to move forward successfully. Don't take offense, it was meant to educate you, isn't that why you asked the question in the first place? Now you know the truth. 

 

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  • Posts 51
  • Votes 19

Scott Friedmann
Developer from Maplewood, NJ

replied about 1 year ago

I have flipped over 100 houses and never spent less than $100,000 on repairs and I have my own crew.  Maybe northern NJ is slightly more expensive for labor and materials, but I have also flipped homes in Charleston SC and in Florida and the costs were the same.

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  • Posts 495
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Troy Gandee
Real Estate Broker from Charleston, SC

replied about 1 year ago

@Bruce Gibson I disagree with that. There are just too many factors. That's also an increase by significant values. $10-$20/square is a huge jump. It's too broad. I think relying on something like that would get you burned.

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Jeffrey Stasz
Investor from Charleston , South Carolina

replied about 1 year ago

@Bruce Gibson i'd recommend finding a contractor that charges for pre-construction and have them take you through the process. 

Estimating is much harder and more time consuming then most folks understand. Some of the best contractors in your area likely charge for estimates and the really good ones that don't only agree to bid on jobs they've pretty much already won. 

Spend some time investing in a contractor and have them teach you how to do a complete estimate. Pre-construction can cost anywhere from 700-7,000 so you will need to call around. But be honest with a contractor, treat her with respect, and pay her for her professionalism and you will end up with an estimating system that is far superior to anything you can find on the internet. 

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Brian Pulaski
Flipper/Rehabber from Montgomery, NY

replied about 1 year ago

This thread is a GREAT example of why using a blanket $/SF doesn’t work. One poster claims they won’t buy a house that needs more than $5,000 in rehab. Another claims he has done 100 houses and never spent under $100,000 on rehab. That is a $95,000 difference in just a handful of posts.

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