Estimating renovation costs for a short sale?

Question

There's a property a few hours away from where I live - it's in total disrepair, but the area seems decent, so I'd like to do an analysis to come up with a price that I'd be willing to offer. The big thing that I'm not sure about is how to come up with a reasonable ballpark for what I'll need to spend on renovations. I suspect that I would be able to get into the property if needed, so I could try to find a local inspector and contractor. My questions are:

- How important would it be for me to be there for the walkthrough?

- What can I do to maximize my chances of finding an inspector and/or contractor who will give me accurate numbers?

- Do you have any other advice for how I should approach this? It would be my first time attempting a flip, so I'm very open to any and all suggestions.

Paul De Luca · Answer

You should definitely get in touch with a general contractor to have him walk the property so he can provide an estimate to rehab it. I highly recommend that you accompany him on the walkthrough so you can ask him questions.

Ask for referrals from people in your network or from other investors on BP in your area. The GC should be experienced with doing rehabs/flips.

If you have not already, you should read the Book on Flipping Houses and the Book on Estimating Rehab Costs by J. Scott.

Good luck!

Evan Polaski · Answer

@Dan Benjamin - First, I would not go after a property if you do not KNOW the market.  What is the basis of "the area seems decent"?  Before it is worth sending anyone to look, what are other properties in the area selling for?  How long are they sitting on the market?  Do buyers value higher end finishes or are you targeting a budget buyer?  These are all questions you will want to have nailed down before spending your time or other's looking properties.

To answer your questions:-In my opinion, I won't buy a property I haven't laid eyes on.  Other people do.  It comes down to how much you trust the people you send through the property and the ideas they have.  Since you don't have a trusted team, or partner who has an aligned interest to yours, it seems like a lot of risk.

-I would call contractors and get a sense of them, as best as possible over the phone.  Do they answer when you call, respond to emails, etc.  Then, I would ask them what it will cost you to have them walk the property and provide a binding bid.  You do not want an estimate, as estimates can change dramatically.  You want a full scope of work and firm bid to accomplish that.

-Again, my suggestion is to remember that flipping is a hands on activity.  I have never done a renovation that I am not checking on at least a couple times per week, even with a trusted crew.  And each time I am on site, there are items that need resolved, even with full architectural, permit and construction drawings.  If you are open giving full freedom to your contractors, flipping from afar can certainly work.  But to me to do something like that, I would want to partner with a GC, who takes ownership and has a vested interest to keep costs down, profits high and move the property quickly.