Having a hard time estimating rehab costs in order to make offer.
New to Real Estate · Vancouver, British Columbia · Member since 2022 · 157 posts · 86 votes
Having a hard time estimating rehab costs in order to make offer.
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes@Gurjot Grewal estimating rehab is one of the hardest things to do. My market might be totally different than your market. So in order to get a good understanding of what it costs to rehab a property in a specific market you have to either go through it several times on your own OR you have to lean on other real estate investors in that market OR you have to have a contractor teach you how to do it. Those are the only ways. If you are buying a property off the MLS that means you have an "Option Period" (in most cases) - that's the perfect time to get an estimate from your contractor.
You can certainly connect with other local investors virtually. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Even facebook will have some. 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 connecting to one online to see if someone is helpful enough to share with you their methods.
Hope all of that makes sense. Thanks!
11 Replies
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes3y
You can find out what the per sft cost of rehab is for a gut vs cosmetic rehab in that area as a baseline/starting point. The actual rehab cost is going to be quite different, but this will give you a ball park.
The better option is to find a contractor that will go out and bid the job. That's the only way you're going to get eyes on the property and get an accurate assessment. I would also offer them compensation to go out and give you a bid.
Your biggest need right now is reliable boots on the ground which sounds like you don't have that. That would be step one if you are doing long distance investing. You have to have someone you can rely on that is knowledgeable in that area. Doing renovations long distance poses many issues and good local support is an absolute must.
- New to Real Estate · Vancouver, British Columbia · Member since 2022 · 157 posts · 86 votes3y
Quote from @Luka Milicevic:
You can find out what the per sft cost of rehab is for a gut vs cosmetic rehab in that area as a baseline/starting point. The actual rehab cost is going to be quite different, but this will give you a ball park.
The better option is to find a contractor that will go out and bid the job. That's the only way you're going to get eyes on the property and get an accurate assessment. I would also offer them compensation to go out and give you a bid.
Your biggest need right now is reliable boots on the ground which sounds like you don't have that. That would be step one if you are doing long distance investing. You have to have someone you can rely on that is knowledgeable in that area. Doing renovations long distance poses many issues and good local support is an absolute must.
@Luka Milicevic Thanks for the reply. I feel I have a pretty solid boots-on-the-ground team, but I don't want to waste their time unless the property is under contract. Last week I had a property under contract but I was way off on the rehab estimate. My project manager and contractor walked it and gave me an idea of the costs. My inspector confirmed a lot of the things that needed work and was in line with what my contractor told me. The costs were high enough to kill the deal and I had to back out. The next one I don't want to make this same mistake.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes3y
What you call a mistake is not a mistake....it's due diligence.
The deal didn't work out because you made the right choice based on your due diligence.
You can ball park rehab costs based on pictures, but until someone goes out there and tells you what it's going to need you're not going to know for sure.
- New to Real Estate · Vancouver, British Columbia · Member since 2022 · 157 posts · 86 votes3y
Quote from @Luka Milicevic:
What you call a mistake is not a mistake....it's due diligence.
The deal didn't work out because you made the right choice based on your due diligence.
You can ball park rehab costs based on pictures, but until someone goes out there and tells you what it's going to need you're not going to know for sure.
@Luka Milicevic I agree. I say mistake because my estimate was way off, about 1/4 of the contractor's estimate. But that will come with time. Do you have any tips for ballparking numbers?
- 3yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Gurjot Grewal estimating rehab is one of the hardest things to do. My market might be totally different than your market. So in order to get a good understanding of what it costs to rehab a property in a specific market you have to either go through it several times on your own OR you have to lean on other real estate investors in that market OR you have to have a contractor teach you how to do it. Those are the only ways. If you are buying a property off the MLS that means you have an "Option Period" (in most cases) - that's the perfect time to get an estimate from your contractor.
You can certainly connect with other local investors virtually. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Even facebook will have some. 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 connecting to one online to see if someone is helpful enough to share with you their methods.
Hope all of that makes sense. Thanks!
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Estimating rehab costs comes over time, walk properties with contractors as many times as you can and pay them for their time. Some will give you low bids, but their quality sucks, some viseversa. Ask contractors to walk properties that they are working on and see the quality for yourself
- 3yPolo VazquezPro MemberReal Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
My advice is get a realtor that has experience rehabing. I send my out of state investors videos of the whole house plus pictures of everything that needs to be fixed that I can see. From that, they can count the number of doors, windows, sq ft of flooring etc that needs to be replaced. Now they don't need to waste the contractor's time. They call them and ask things like "how much is it per sq ft to replace this? how much per window, how much is a 2 ton AC"? It's not 100% accurate and I still suggest they have contractor give them a real estimate during the option period but it gives them a good ball park. I've even gone as far as 3d scanning homes for them. They can take measurements and see every in of the house with it.
- 3yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@Gurjot Grewal you are missing a piece to your team.
If it's been sitting in the MLS for 100 days every investor has seen it and passed on it and you are not going to be able to do a rehab for less than local people with local resources.
If you are working with a Realtor who does not have resources to help facilitate this you are not working with the right Realtor.
Can’t speak to the team you are using, but here is our process.
1. Our realtor walks the property and provides and soft quote in rehab work based on sq ft comps from our construction division. We have enough info to decide if we want to get it under contract.
2. Once it’s under contract we get our construction sales person in there. He Provides a hard quote with line item expenses. The client decides to go through or not.
From there the process is as good as your contractor. If you have a good one he will get you through it, if it’s a bad one you will struggle.
Either way, having to guess at rehab costs from a distance is a nightmare. No way you can see things like copper pipe tied into cast iron, asbestos tile or asbestos wrapped piping in the basement, lead paint, and many other issues that can cost thousands.
Irish Jones Realty4.947 Reviews - New to Real Estate · Vancouver, British Columbia · Member since 2022 · 157 posts · 86 votes3y
@Andrew Postell Thank you for the advice. I've connected with some investors in the area since your post and I'll try to join some online groups as well. This does seem like something that comes through repetition and experience.
@Eliott Elias Makes sense, thanks for the advice!
@Polo Vazquez next time I have something under contract I will try this. Get the realtor to walk and provide a soft quote seems like a good idea.
@Matthew Irish-Jones That's a fair point. I am probably underestimating the rehab on that specific one. I have made a lot of offers at this point, I feel that in order to not waste my time agent's time I only get him to walk it once it's under contract. All my offers include an inspection period. And then I will get my inspector and contractor to walk it. What do you think?
- 3yPolo VazquezPro MemberReal Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
I think you should do it like @Matthew Irish-Jones does it. Realtor first the contractor once under contract. You may think you are wasting the realtor's time but that's our job. We get paid to show properties. It could be virtual or in person. We don't mind if we know our client is making offers. We speciall don't mind if the client will use us again when selling the property after flipping it. I've even gone as far as doing 3d scans for my out of state investors after they get it under contract.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Gurjot Grewal:
Hello BP
I'm planning on doing a long-distance BRRR. Currently making offers and looking for a deal. J Scotts' book on estimating rehab costs has been helpful, I'm almost done reading it (will probably re-read it). But when making offers at a distance I'm still having a hard time estimating rehab costs, which is making it hard to make an offer.
There's a property on the MLS that's been sitting for 100+ days. I can see the kitchen, bath, flooring and walls all need work. On google street, I can see the siding needs work. One room has a hole in the ceiling. In some pictures, the lighting is on so I can assume some of the electrical is in working order. It's a 1800sq foot duplex.
How can I come up with a rough rehab number to see how much I should offer on this? I am educating myself on developing a scope of work and I know after a couple of deals I will start to grasp the numbers better. But for now with it being my first one, how can I get to a ballpark number in order to make an offer. Of course, once under contract I will have a contractor walk it.
Ok so you do not have team (you can trust) in place, DO NOT DO THE DEAL. If you are going to just hire a GC that you do not have a relationship with STOP. Also stop reading books. You need to connect with those doing deals in the area and make them a "partner" . Learn then go on your own.
Good luck
BTW its been on the market for 100 days , that alone should tell you its not a deal... You are not ready, , yet. Please connect with someone doing deals, learn then apply what you learn
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