How can I learn renovation costs?

Question

I'm extremely interested in learning the BRRRR method. I already have experience researching ARV through comps and rental rates. But I feel completely ignorant when it comes to estimating renovation costs. How can I learn to make reliable renovation estimates with only a house walkthrough? I expect I can't have contractors give me estimates for a house I don't already own, and I can't know if a house is a good buy unless I have a reliable renovation estimate. So how can I learn to estimate renovation costs?

Steven Foster Wilson · Answer

I think it is about building a relationship with a contractor. I have my contractor walk properties with me during showings. I also did my first 5 units by myself to learn what to do and the costs. Always plan for more. Our first property we got with a FHA loan, it passed but the second week in the pipes bursted and we had to replace them all. I would also ask people in your area to share their break down of the rehabs they have done. If you can see what others have done and how much, you will get a better feel when you are walking a property.

David Robertson · Answer

Bidding on work is a cost of doing business and is generally a "sales/business development expense" for a contractor.

With that said, I also understand that the average residential GC doesn't have a dedicated estimating department so bidding on work can be very time consuming and a big waste of time if you are dealing with tire kickers.  If a investor doesn't have a property under contract they are a tire kicker and the chances of them getting the property under contract are slim to none.  If they have the property under contract, at least there is a legitimate project that is likely going to happen.

I spent 7 years as a estimator in the commercial business, and trust me we did plenty of "free" estimates for legitimate clients and legitimate projects...but there were also a lot of projects we did not bid on because the clients were tire kickers and the projects were pipe dreams and we didn't want to waste our time.

If I'm an investor with a legitimate project, I wouldn't expect to pay for a bid.

If you are a GC that is so incredibly busy right now that you are backlogged for months, don't have time to bid on work and are charging a fee to put together a preliminary estimate then it sounds like you probably aren't that hungry for work and probably aren't the right contractor type for a house flipper to begin with.

David Robertson · Answer

Learning about renovation costs is a process that takes time and experience.  Here is my boilerplate list of the steps you should take to learn how to estimate rehab costs:

#1 Read the Book on Estimating Rehab Costs

Expert house flipper J Scott discusses the fundamentals of budgeting and pricing rehab costs and reveals the steps, tips, and tricks he uses to accurately estimate costs for 25 common trade categories and hundreds of repairs. The Book on Estimating Rehab costs is a must-read book for new rehabbers that struggle estimating rehab costs for their rehab projects.

#2 Walk Through Distressed Properties and Spy on the Competition

Walk through a couple of completed rehabs that a local real estate investor has completed in your local market and study the types of repairs they made and the level of finishes they installed in the property.

Spying on the competition and understanding what buyers are looking for will help you determine what type of repairs and level of finishes you need to install in your own properties.

#3 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.

#4 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.

#5 Build Out Your Database in 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.

#6 Practice, Practice, Practice

Walk through distressed fixer-upper properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.

This will help you get acquainted with common rehab repairs, rehab costs & estimating terminology.

#7 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!

#8 Learn from Your Experience!

Once you complete your first house flip project, take some time to review your actual costs that you spent on the project and compare it to your initial estimates and budgets.

Reviewing your final numbers will help you gain a better understanding of how much you actually spent in each Category and identify areas where you underestimated cost and blew your budget.

When you buy your next house flip project you will have this valuable learning experience to help you build a more accurate estimate!

As your continue to do more and more houses, you'll gradually gain more experience and be able to develop accurate estimates quickly and confidently!

Johnny Tran · Answer

Great question. I would start with understanding/break down the parts of a home and evaluate how trade workers charge for the job.

____Repair cost break down___

Roof - repair price depends on home SQFT, type of roof + any know damage

HVAC - replacing a Condenser (outside unit), handler (inside unit), ducts or possibly replacing all together

Electric - cost depends on the job - replacing panel, running new wires, adding or repairing electric to an area

Hot water tank - cost of tank + labor + ( some plumbing components)

Windows -  cost per window + labor cost per/window

Paint- cost is price per/sqft, varies if painter are painting trim, primer, how many coats, interior or exterior

Sheet rock work - how many sheets 4x8 sheets will they Demo and replace

Flooring - normally charge per/sqft - find the cost of the floor you want and multiple by your sqft and add the labor cost per/sqft

kitchen - cabinets ( price per cabinet + labor to build and install) - counter top cost, price for material sqft and price per sqft of to fabricate, cut, and install

Appliances - cost of appliance + install

Bathroom remodel - depends on the size and quality finish - i start with finding the price for a small standard 5x7 bathroom and move up

Plumbing - cost depends on the size of the job and scope of work

The above information is a quick break down of how to get rough estimate of rehab cost. Make a list of the repairs needed and add them up

+++I would suggest starting with the current home you live in now. Call and ask different trade workers to give you a quote on a specific remodel to understand estimates and cost. For example  call a handyman/general contractor (3 and get average price) to your house and get an estimate on a basic remodel of one of your bathrooms. Replace everything in the bathroom and bring it up to date. This will give you good baseline of a bathroom remodel cost in your area...If your roof old? Call some roofers out to get an estimate on replacing your own roof. This will give you a baseline cost of a roof repair for other projects +/- rehab cost depending on each homes sqft

Hope this was helpful.

Eliott Elias · Answer

Walk over 100 Proeprties. Look at every distressed home on your city and walk it

Bruce Woodruff · Answer

Like everything else in life, it just take repetitions. Lots of them. There are absolutely no shortcuts. You need to HIRE (that means you pay them) a Contractor to do the walk-throughs and throw out numbers for you....until you get good enough. There is literally no other way.

Andrew Postell · Answer

@Justin Megna AWESOME!  I wish more people would ask this question - because it's 100% the right question to ask.  You cannot do the BRRRR method successfully without knowing how to calculate your rehab costs.  And as you mentioned, how do you actually estimate it when a contractor can't be with you to view the property?  There's 2 methods I would suggest here:

• Visit your      local REI groups. There are many groups that meet across the      country. Some post here on the Bigger Pockets Marketplace. Many post on      meetup.com. Even facebook. Networking is always a great practice and you never know who      you might meet there and what good information they have to share. Would      certainly recommend visiting if one is close to you.
• Start small.  The first house I did the BRRRR method on I purchased for $7,000.  That way, if I made a mistake...at least it would be a small mistake.

Remember, it took you 12 years (or so) just to get out of school.  It will take a while to get really good at this stuff.  But if you can do it then the sky will be the limit.  Hope all of that makes sense. Thanks!

Bruce Woodruff · Answer

Yes, but they knew you were a real deal investor right?

An average GC will not waste time with an average investor, i.e, 'tirekicker'...why would they?

Jordan Kelly · Answer

@Justin Megna get some bids

Matthew O'Hara · Answer

Hey @Justin Megna you can always hire a few contractors until you get a good idea but I don't think thats the only way. I would connect with a few locals in your area that flip houses themselves and just see if you can pick their brain. It may take some networking but there are usually a few people on facebook or other platforms that are willing to talk to you. You'll have to weed out some people that may waste your time of course.

If you have the time you could also essentially cold call specialty service providers rather than GC's. Call a few window places and ask for quotes on your house. Do the same for a water heater replacement, etc... electricians, plumbers, and HVAC are generally the most expensive. Most people will tell you they need to see the house to give you a quote but you can usually get someone to give you a ballpark estimate on the phone and just take good notes. Eventually you'll have some good starting criteria to go off of.

How can I learn renovation costs?

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