Trying to Analyze My First Deal. Need Help Estimating Rehab Cost!

5 Replies

Hello!

I'm still in the phase of saving money and getting my REI education. My goal is to make my first deal on a house hack within a year! While I'm learning, I'd love to start analyzing deals so that I'm ready to pull the trigger when the time comes. However, I feel very overwhelmed by calculating all of the expenses required to accurately analyze a deal. As I've heard the math and the numbers are perhaps one of the most important aspects of this REI business, I'd love to get great at this!

I have a property that I'm trying to analyze, and I'm wondering if someone could walk me through what goes on in their mind when it comes to estimating rehab costs by looking at an MLS listing.

Realtor.com Link to Potential Property

Additional Questions:

Would you even calculate it yourself or call a contractor immediately? 

What resources do you recommend for estimating rehab costs? (I'm thinking the BP Book on Estimating Rehab Costs)

Is this supposed to be a quick process? Or does it eventually become quicker after you really assess many properties?

Any insight would be GREATLY appreciated, thank

Hi Brent,

This is a common problem and question for new investors that don't have construction experience. Learning to estimate rehab costs is a process that takes time and experience.

Here is the process I recommend to learn the basics so you can start to feel more comfortable estimating rehab costs and putting together budgets:

#1 Read 'The Book on Estimating Rehab Costs'

First, you need to build a foundational knowledge of construction, inspecting properties and putting together a detailed SOW.

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 / Hire a GC to Consult

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.

You can also pay a General Contractor a consulting fee of a couple of hundred dollars (per house) to walkthrough a few properties with you and provide a detailed estimate of prices that you can use as your 'menu for 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.

#6 Get Your First Rehab Project

You can practice all you want, but ultimately you will learn the most about estimating rehab costs by actually rehabbing a house. Getting your first rehab project will require you to create a SOW, talk to contractors, compare and review bid proposals, review budgets, & make countless trips to Home Depot.

​You will inevitably make mistakes and underestimate things, but you will learn 90% of what you know by just doing your first rehab!

If you aren't comfortable estimating costs on your own or aren't willing to put in the work to learn how to estimate rehab costs then you need to team-up, partner, or hire a GC as a consultant that can help you estimate your first few projects.

Unfortunately, there is no easy to estimate rehab costs simply by looking at an MLS listing.

Rehab costs fall under two categories: Functional and Aesthetic. 

If you know the area well, and you know what the comps look like, you might be able to use the MLS listing to determine the list of aesthetic repairs necessary to bring the property up to your ARV.

But, without an inspection, it's impossible to know what functional repairs are needed.  Looking at pictures won't tell you if the HVAC works (or how old it is), won't tell you if the water heater is installed correctly (unless the listing includes pictures of the water heater), won't tell you if there are leaks under the sinks, won't tell you if there is evidence of moisture in the basement, won't tell you if there is mold in the attic, etc. 

There could be $100K worth of functional repairs that you'd never know about just looking at pictures.

All that said, the BP book on estimating rehab costs is a great place to start (I'm the author, so perhaps I'm a bit biased) -- once you understand the methodology for how to estimate costs and the specific process, it gets much, much easier as you practice.

@David Robertson , wow! That's so much info to get started with. Thank you, thank you! My next step will definitely be getting that book.

I haven't yet met up with any investors in my area, but I think I may be able to get in contact with a few. Do you think they'd be willing to let me tag along or help them find/analyze deals? I feel like that would let me get a lot of practice while I'm saving!

@J Scott , I'm honored to have your response! Thank you! That makes a lot of sense though. I'll definitely start with your book.

In your professional opinion, would it be appropriate for me to ask another investor/house flipper if I could come along to get more experience with estimating such functional and aesthetic costs?

Originally posted by Brent Barnes:

@J Scott , I'm honored to have your response! Thank you! That makes a lot of sense though. I'll definitely start with your book.

In your professional opinion, would it be appropriate for me to ask another investor/house flipper if I could come along to get more experience with estimating such functional and aesthetic costs?

Absolutely. In fact, that's the best way to learn. Find someone you know and trust in the business, build a relationship, ask to tag along, and even potentially volunteer some of your time to help them out in return for them and teaching you various aspects of the business.