1. How can I improve my accuracy at assessing rehab costs?
I have an engineering background, but know little about estimating.
2. What permits or licenses should I consider when doing my own rehab work?
I know its varies by state, so lets use NJ for example.
I walked my first property with a rehab cost list put together by another investor. I had never done this before yet I was able to nail it. Some things were over, some under but overall I came in almost exactly at what I had budgeted (60k). I had a contractor walk the property and put together a bid which was ridiculous, I had him do the work but he became more of a subcontractor to me. His 100k bid tuned out to cost 60k, imagine that.
I put in 5 hours a week average helping out to learn how to do a rehab. After this first house I felt confident walking through a house knowing within a margin of error what it's going to cost. Buy cheap enough that you can underestimate big time and still make a profit on your first 1-2 deals.
I would also advise you to only Invest in real estate that you can buy at a price that allows you to pay others to do the rehab. Your time has value, do you want to be a paid laborer/carpenter or an Investor? I refuse to touch another house again, my last house I spent less than an hour of my own time "rehabbing", I hung a mirror, replaced a lightbulb and touched up some paint on a door lol. I'll pay professionals to do that and I'll spend my time finding the next deal at 70% or less of value, that is where the money is made!
@Lee S. I guess I enjoy the rehab aspect since my father was a carpenter and I was an engineer. Now I am unemployed so I can work full time on this project.
Do you still have that cost list by any chance?
You might find homewyse.com and fixr.com to be helpful. Best of luck with your investments.
@Patrick Martone check out j Scott's book estimating rehab costs. It will help you greatly. A lot of cost can be estimated by sqft. Example, paint may cost around 2$ per sqft. Carpet may cost around 1$ per sqft etc...
@Patrick Martone buy j Scott's book on estimating rehab costs. I am not sure if his prices he lists are accurate for New Jersey, but I would think it should be pretty close.
Like you I have an engineering background, which unfortunately will do you almost no good with investing. I would say the only time my engineering background helps is if we are moving a load bearing wall, replacing some structural supports, etc. which typically these are not difficult situations.
You just need experience to really understand rehab costs. I would say start out small and get bigger, i.e. Paint and carpet rehabs initially and then work your way up to the full $100k rehab.
I noticed you mentioned in a previous post that you were considering using an FHA Streamline or 203k loan to purchase a small multifamily where you/your father could house hack. In our experience with such a loan (203k), you can only do the rehab work yourself if a) you're qualified and it sounds like you/your dad would pass the test, and b) if you buy a single family home. For a small multi-family, our lender gave us no choice but to go with a contractor for any and all repairs that were included into the renovation loan.
I might be wrong here, but I believe that legally in NJ you can only do the work yourself on a duplex in which you yourself live. Anything above that (3-family+) requires a contractor to pull permits.
@Patrick Martone I think I do, pm me your email address and I'll try to email it to you sometime today.
@Patrick Martone I too like the work, and save money by paying myself to perform work I like (tile, trim, carpentry, etc...)
With that said, when you are doing the work it is easier to estimate verse a sub or GC. A good starting point is to figure materials and then double the number for labor.
@Brian Pulaski If your doing the work your self, why double the material cost for labor?
Sorry, I wasn't clear on that. That is one way to help get an idea of a Contractors costs for a job. If there are $2500 in materials, an ok bet is to factor $5000 total for the work. This is not anything more than getting you a ballpark for working up a budget.
I agree with @Brian Pulaski , typically materials and labor will be about the same. There are items that are more labor intensive like painting, but on larger rehabs they typically work out to be about the same.
To answer your question about getting better at rehab costs...
Get familiar with the area that you are investing in. This can be as easy as looking at the other listings in the area, even if you aren't looking to buy those properties. Become familiar with the price range, style, etc.
For example, if you are looking at a house that would be $200k AFTER improvements, what will your customers expect IN THAT AREA? Granite? Hardwood floors? Tile everywhere? Custom cabinets? Stainless steel appliances? Etc... Then research the cost for those items. I created a spreadsheet for myself to get rough numbers.
Totally an example, don't rely on these numbers
2,500 sqft house
1,000 sqft of carpet @ $2/sqft installed
1,500 sqft of wood flooring @ $5/sqft installed
18 linear feet of cabinets @ $200/foot
Once I have my "per foot" values, I can then quickly go into another listing that is 3,000 sqft and adjust my figures in my head (and later confirm on paper).
Another "block" of cost is appliances. Research those. For the most part the cost won't change based on the size of the home unless you are jumping up to a custom home with a Viking stove or something.
So put together a package for stove/oven, dishwasher, fridge, microwave both in SS and not. Then you can easily add that price to the above.
Do the same thing for bathrooms. Vanity, toilet, faucet, etc.
This may not give you the complete answer, but you can see my logic. It gets me in the ballpark. I do the work myself, so I don't factor in labor...but I don't work for free either! I add an additional percentage to my profit margin that I expect when I run the numbers for the deal to see if it makes sense.
x% because I'm risking my $$$
x% because I'm dealing with the headaches
x% because I'm risking my sweat equity
x% because I don't do this stuff for free.
YOUR x will vary...
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