I'M STUCK!!! No idea how to estimate rehab cost

18 Replies

So I've read @J Scott's  The Book on Flipping Houses, purchased the Enterprise Edition of the house flipping spreadsheet, navigated Homewyse.com for hours, and I'm still stuck. I have absolutely no experience in construction and my DIY experience has been nothing more than putting up backsplash and painting in my home. I'm still learning terms like abatement and waterproofing. Today, I was doing a walk thru of a wholesale deal and could clearly see what needs to be done; the wholesaler even provided a proposal from a GC. Problem is, he's never used the GC, the GC provided a basic SOW with only a total costs, and I don't know how to estimate what those repairs should costs.

I have lengthy experience in preparing service contracts and analyzing costs, but in my 9-5 I rely on my customer to prepare the should-cost estimate which gives me a basis to determine if costs are reasonable. In this new world I've ventured into, I don't know where to start. Ideally, I would like to have 2 or 3 GC's meet me at the suspect property, walk thru taking notes on all repairs/upgrades needed, and within a few days provide a line item costs proposal. However, the few GCs I've reached out to show no interest in doing this. Is this normal, or should I keep looking until I find GCs that are willing to play? Bottom line, me trying to navigate Homewyse.com for every repair/upgrade needed will lead to me missing deals, so I need a more effective/efficient way to arrive at my rehab estimate. Can anyone provide any suggestions or advice for an ambitious newbie? Thanks in advance.

Estimating rehab costs takes time to learn and the only way to do that is by finding an honest and trustworthy contractor who will be willing to work with you. As in any business it's all about supply and demand. Contractors are a funny breed. When the work is scarce they'll bend over backwards and take on any project or request. When it's busy, like it is currently, they rather just throw a lump sum price and see if it sticks. 

It will take time to find the right fit when it comes to your contractor. Make sure to request and they should be giving you a detailed time and material breakout cost for the work that needs to be performed on the target property. This will help you understand how long different projects take to perform so you can begin to learn the pricing yourself. Also you might want to consider cutting them in on the deal for a percentage if the numbers are good in order to make it enticing to them so they'll work with you again.

Good luck

Hi my name is Rick Jabour.  I am a general contractor (remodeling ), in Vacaville, Ca. I have read your tale of wo with amuzed interest. Be careful! In this situation,  you could be taken advantage of.  Would you consider being your own contractor? You could hire a consultant for this one job, and after this flip you will be able to do these rehabs yourself.The truth is revealed by getting three bids for each subtrade.

With a rehab, it's all about curb appeal and location. And, if you are not a realtor,you can pay a realtor to get the property on the

MLS for $200-$400. That way you are selling it yourself as the listing agent and you will save 2-3% on the commission. It is a big advantage to have a Real Estate License when doing flips; but not totally necessary.

  I hate to see you taken advantage of on your first deal, but if you can get through the first one unscathed, you will be off and running!

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@Stephen Seaberry

Welcome. 

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). Talk to wholesalers see what they set aside for various typical repairs and upgrades.

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good Luck

Paul

Originally posted by @Stephen Seaberry :

So I've read @J Scott's  The Book on Flipping Houses, purchased the Enterprise Edition of the house flipping spreadsheet, navigated Homewyse.com for hours, and I'm still stuck. I have absolutely no experience in construction and my DIY experience has been nothing more than putting up backsplash and painting in my home. I'm still learning terms like abatement and waterproofing. Today, I was doing a walk thru of a wholesale deal and could clearly see what needs to be done; the wholesaler even provided a proposal from a GC. Problem is, he's never used the GC, the GC provided a basic SOW with only a total costs, and I don't know how to estimate what those repairs should costs.

I have lengthy experience in preparing service contracts and analyzing costs, but in my 9-5 I rely on my customer to prepare the should-cost estimate which gives me a basis to determine if costs are reasonable. In this new world I've ventured into, I don't know where to start. Ideally, I would like to have 2 or 3 GC's meet me at the suspect property, walk thru taking notes on all repairs/upgrades needed, and within a few days provide a line item costs proposal. However, the few GCs I've reached out to show no interest in doing this. Is this normal, or should I keep looking until I find GCs that are willing to play? Bottom line, me trying to navigate Homewyse.com for every repair/upgrade needed will lead to me missing deals, so I need a more effective/efficient way to arrive at my rehab estimate. Can anyone provide any suggestions or advice for an ambitious newbie? Thanks in advance.

Stephen,

The advice to go to REIA meetings and meet some contractors there is a good one. Try to connect with some, see who you have a connection with.

You'll have to determine whether you want to work with a small company ("2 guys and a truck"), which will save you money, but take longer to get your project done (and which can be the "funny breed" mentioned above), or a larger company, which will cost more, but usually get your project done more quickly and may have more than one estimator to look at projects.

I'm a GC in Fort Worth, Texas, with 7 crews and two other estimators besides me. We're all busy. Running a full-rehab estimate takes me a couple hours for the visit (drive time + onsite), plus anywhere from 2 to 10 hours, depending on complexity, to write it up. AND, investors are the lowest-margin clients. AND, new investors - because they're new - require a lot of handholding. I work with new investors all the time, and end up trying to help them navigate through all the stuff that they need to learn, but I won't go do an estimate on a house you don't already have under contract.

If you establish a relationship with one or two GCs at an REIA meeting, you might find they're willing to do a couple walk-throughs with you on houses you're thinking about, and just float you a ballpark. But a ballpark is just that - when they sit down and start putting a pencil to the numbers, it may be 15-20% higher than the original ballpark estimate.

stephan. here is how i do it. granted, i have been doing it for years now, but it works. it sounds like you know how to do it now. go thru, get a list, a very very well detailed list of everything you need. go to home depot and lowes and get prices. add 20% to your total just for error sake. usually, you will go over your budget by 10% so 20% gives you a fail safe. figure out how much you can do and how much you would have to hire done. then, find handymen and college kids to do everything you can't do, for pennies on the dollar. you will be amazed how cheap you can do it

Originally posted by @Stephen Seaberry :

So I've read @J Scott's  The Book on Flipping Houses...

 Just curious...did you read the companion book, "The Book on Estimating Rehab Costs?"

If you haven't already, do yourself a favor and buy J's companion book that he mentioned.  

It sounds like you have 3 options.

1. Pay a GC his hourly rate to walk through and write an estimate. You don't even own the house yet, why would anyone want to waste their time writing up an estimate for you ON SOMEONE ELSE'S HOUSE?!?! That makes no sense to me at all. That GC could be on a paying job in stead of donating his time to you. He has a family to feed.

2. Find a partner. If you and a contractor agreed on a profit split, he's going to be at every walkthrough to be sure he can get the job done quickly and cheaply. Yes, you'll be giving up half your profit, but you'll be getting half too. As it is, you're getting nothing. But you shouldn't look at it like you're givig up profit, look at it like you're buying an education. Learn from your partner so after a few flips, you can do it alone.

3. Try it alone and learn from your mistakes.

Personally, I'd love to find a person like you in my area to partner with as in option 2. I'm sure there's plenty of guys in your area who would too!

Good Luck!

Derreck

Flipping houses in your position does not sound like the best way for you to start.  Start with much smaller projects.  I guess everyone has agreed that no contractor is going to come over and do an estimate on your property just to entertain himself.    One is lucky to get them there when  they have been hired.

You sound like a person that has to know everything before he steps in well that's not about to happen here.  All you can do is take the estimate you have or can get and add some fudge amount to it and see if the deal works.  In the future perhaps you should concentrate on newer  properties that need less rehab.  Perhaps something with tenants in place when you can rehab slowly.  its easier to get a kitchen estimate then an estimate when every room has to be rehabbed.   The advise to join a Real Estate group is a very good one.  Maybe you should try to partner with a person who is very constuction savy for your first and second project and start your learning curve there.

Getting to know a GC is really step 1.

Just reading a book or cussing and discussing won't teach you construction techniques, codes or about materials, that takes time to gain experience as well as research.

Many RE text books have exploded views of a house, showing the parts from the vapor barrier at a foundation up to the overlap of shingles, the ridge cap at the top of a roof. You need to know the elements that go into a home to build one or tear into one.

Handyman magazine is handy for the beginner and pro, other home improvement publications and sites are full of techniques, but actual skills take practice to master.

You can get an idea of material costs at the supplier, their ads usually have common materials. Knowing what something is, saying 3/4 T&G tells the guy at the contractors desk you might know what you're talking about and you could get a better price. Check other suppliers besides the box stores too, really depends on what it is as to who really has the best deal.

There can be thousands of minor parts in a building, you don't need to know all of them but you need to know the major components, saying a door sweep says more about you than saying that strip at the bottom of the door that stops drafts.  Saying a Stanley D-21, 6 lite, three-oh, right saves the supplier time on the phone, you save them time they can save you money, instead of asking the price for a standard exterior door that open to the right that has some little windows in it. Know what you're shopping for. 

About the only way to know how long it takes to lay a floor is to watch it being laid, or doing it. Contractors are basically selling two things, knowledge and time. Takes knowledge to manage the skills they employ and time is with the meter running. Having an idea of how long a job should take and the level of knowledge (skills) to get it done can tell you about what to expect to pay.

Understand too that a contractor has "lead time" in preparation for a job, getting the tools loaded, job assignments, phone calls, letting sub contracts and accounting can be of the allocation to a bid price. They also have fixed and variable costs, wages, insurances, taxes and other expenses that have to be covered based on the time they have available.

This all takes time and experience to master. Why investors need to learn the basics of real estate before running out trying to do some wholesale deal needing a renovation. Get a CG that will work with you, you probably have a long way to go to be an estimator. :)  

  

You might also try visiting the "Pro Counter" at your local big box store.  Many times they will have a place for contractors to place their business cards.  Make sure you also ask the employees if they have someone they can refer.  BUT - don't rely solely on a business card, make sure you perform due diligence.  

Homewyse.com is a pretty good at estimating some repairs, but can be WAY OFF for others.  While playing around the other night, I decided to see what the estimate for replacing an electrical outlet switch plate would be...$69.88 - $148.49 PER SWITCH PLATE.  Sometimes it's better do some of the things yourself.  Grab some more books such as Home Improvement 1-2-3 (from Home Depot) and study up.  Most big box stores also offer free classes on home improvement (usually on the weekends). They are typically pretty good hands on experiences.  BUT - don't ever try to do any repairs yourself that will put your safety or others at risk.  

Originally posted by @Mike Hurney :

@Stephen Seaberry Ya, you should just read another book or two!

You'll never learn how to estimate rehab costs JUST by reading a book or two.  

Now, you can learn the methodology for how to estimate rehab costs by reading books, but then you have to do the leg work to actually talk to contractors, visit suppliers, practice, etc.  

Books can't do the work for you...they can only guide you.  No different than coaches, teachers, mentors, etc.  In the end, it's up to you to do the actual work...


I appreciate all the feedback and I'm certainly going to take what you guys are saying and apply them. @J Scott, I actually just ordered Estimating Rehab Costs last night after I posted this. I'm re-reading some sections in your first book right now that addresses rehab cost estimations until the book arrives on Tuesday.

I've been to a few REIA meetings and make it an effort to make it to the two major ones in my area every month. I haven't been touching base with the GC's as I probably should, but will do so for now on.

Originally posted by @Stephen Seaberry :

I appreciate all the feedback and I'm certainly going to take what you guys are saying and apply them. @J Scott, I actually just ordered Estimating Rehab Costs last night after I posted this. I'm re-reading some sections in your first book right now that addresses rehab cost estimations until the book arrives on Tuesday.

 Let me know if you have any questions...

How to determine what is reasonable so that you might have a gage?

Research;

-process of elimination, labor+materials+ profit=cost ( generalized of course) price materials by calling around, get labor only estimates(which are usually labor+profit) more information you gather, the more accurate your formula gets. Fill in as many blanks as possible to arrive at your labor number (how many hours worked by how many people of what skill level, etc)

- benchmark off those already successful. Find out what they pay for x, y, z. See if it lines uo with what you already know, if not, determine discrepancy.

-internet, place an ad for a electrician/ plumber/whatever..tell them x job pays hourly based off a 10 hour job..(or whatever number you want) find out how much they want in labor only total (because you have the materials)...maybe throw in a "im looking to pay x an hour" (knowing its low) and wait to hear what they counter to you as minimally fair. Verify his number with the next guy. Try and form a general consensus.

Many different ways to do it, just dont be lazy and take peoples word for it, do the leg work.

I think you have talked this problem to death.  You should just be going on  to the next step of selecting a property and then working from that point.  Right now you are just having a a problem in theory .  Its not like you are building a house you are just buying one. Try to select a newer house as it is easy to figure out what a roof  would cost or painting or a kitchen and bath.   Even home depot can give you a price on installing a kitchen or/and bath.  This is NOT brain surgery.   

Pay a few GC's for line item bids.

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