Estimating Repair Costs

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Estimating Repair Costs

E. Jacobs
Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes

Hi everyone- I'm trying to start my wholesaling business this summer but I must say I have absolutely no experience or knowledge about rehabbing or its associated costs. I want to be able to walk through a house and know what to offer based on accurate repair estimates and market value using comps. But if I don't know how to estimate the repair costs, what should I do? I know I will eventually learn from experience but I don't want to let this slow me down. Should I try to add a contractor to my team at the beginning to do walkthroughs with me and estimate the repairs? I could refer business to him from my investor network and also give him a cut if I close on the deal. Or should I ask the seller to estimate the repairs and pass that number along to potential buyers and tell them that's what the seller estimated? Does anyone have any advice here?

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Sage Jankowitz
Residential Real Estate Agent · Somerville, MA · Member since 2009 · 195 posts · 32 votes
16y

I'm a fairly new wholesaler with about six months experience and I ran into the same problem. About three months in I connected with an experienced general contractor who has worked on a number of rehabs for many successful investors in my area. He's looking to get into his own rehabs ASAP, so we came to an agreement: Anytime I find a qualified property he'll check it out with me and estimate repairs free of charge. He'll have first dibs on any property I get under contract, but if he doesn't want it or can't get the funding within a week, I open it up to anyone on my buyers list. It's win-win because he gets to look at qualified leads for free all the time and has first dibs on every property I come across. And I get free estimates and a wonderful education in the process.

I've learned quickly that it's all about forming partnerships and alliances to help one another out. Find out who you need on your team and then ask yourself, what can I do to help them? Offer your benefit to them first and then ask if they can help you (most newbies get this reversed). You'll have much more success then trying it the other way around!

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  • Peter Giardini
    Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
    16y

    Your idea regarding contractors could work... however, most contractors will want to be paid for the advice.

    Some investors have used the square footage of the house to determine repair costs... depending on your location $50/sq.ft. might work.

    Another approach would be as follows... for a house less then 1300 sq.ft. use $45K and for a house up to 1800 sq.ft. use $65K.

    Thre are probably others that might work.

    Also. I seriously doubt that the majority of seller would be qualified to pass judgement on needed repairs.

    Best of luck!

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, Peter has a good point with the sq ft approach, if you can get the numers to estimate different levels of repairs that may be required. Trashed, extensive, significant, updated and minor, or something like that. For a newbie that will be the easiest way to approach the deal. Using say $50.00 per ft on a 1200 sq ft house can exceed the ARV real quick and certainly you don't expect them to pay you to take it.

    Using a contractor is probably the best way, if you can find one to work with. Know he will be fudging upward for his profits. If you can find a contractor that will do a flat fee plus costs, and be honest about it, that will give you the closest figures. Either way, you'll need to pay attention and learn before you can do a walk through and do your own estimating, it just takes experience and keeping up with material costs. IMO Bill

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  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    16y

    It depends on the level rehabs you are doing and level of labor you are using.

    For properties 2000 and newer I use $7/sq.ft.

    For properties 1990 and newer I used $10/sq.ft.

    Everything else gets a $25-$35 per square foot by using my gut calculator.

    These are just my quick calcs I use. If it passes these tests, then I go into more detail and sharpen my pencil.

    You can easily spend $10K on a property that "doesn't need anything".

    Keep in mind, this is for AZ. I see you are in Chicago and probably deal with older houses than my market area. In time, things will come to you.

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  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Thanks guys, that was a lot of help. I think I am going to try finding a contractor who will work with me. How much do you think a flat fee for giving me an estimate on one house would be? And since most deals don't close, how can I minimize some expenses here? Do I only have the contractor come if I find a very serious seller? Paying a guy a fee for every house I look at can really cut into profits if only a small percent of deals work out.

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    I take a different approach because for me, I've literally done about 2,000 estimates, mostly in the Chicago area as a contractor and insurance adjuster. The thing with estimates is you can't really come up with a per square foot price unless you know what your scope of work is going to be. I'm guessing Peter and Jason have their square foot pricing because they have in mind the finishes they intend to do and it's a pricing they've come to through experience. I've done repair estimates on one end on homes in South Holland and on the other end I did a repair estimate for some work on Navy Pier and the Hancock Building and the dirty little secret is the actual cost per square foot is the same on each. What is different is the actual scope of work each project required and the level of finishes appropriate to each project.

    Putting together a standard scope on some finishes is something you can do. Things like paint, carpet, laminate flooring, etc.... What makes it easy is big box places will give you a free estimates for installation and materials if you bring in square footages to them. Do a little math and you'll figure out what it should be costing you per square foot - or at least what you should be budgeting.

    What gets tricky is electrical, plumbing, and anything structural or requiring code compliance. You need to learn the scope of work involved in repairs - especially in Chicago. The Chicago building department is pretty serious.

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  • Michael Quarles
    Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes
    16y

    Hello y'all

    Estimating repairs is why every week a new investor should be calling through various vender's and asking questions of them. One of the questions is what certain items cost in a house...

    Also for a down and dirty I created the following... Its based on ugly and also needs a little training to use it correctly... However it is also a great tool when in front of a seller...

    www.MichaelQuarles.com/Repair_Worksheet.xls

    0Reply
  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Thanks guys. Until I'm experienced enough to do estimates in my head, how much do you think a contractor should be paid to come give an estimate on a house for me?

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    Depends. I'm doing one this week for a contractor up on Ewing street who wanted an estimate for fire repairs. Shouldn't take me more than 2-3 hours. I'm billing him $95/hr for it but capping it at $200 total costs. He is using my estimate as a third party prepared estimate to negotiate pricing.

    This is different from getting a price from a contractor because he is already getting prices and is using my estimate to negotiate.

    When you get a price from a contractor who's bidding for the job, they should not be charging you for giving you a bid. Be advised though that their patience with you may run very thin if you have them go to half a dozen houses you don't own to do repair estimates for jobs they will probably never get.

    On the flip side, paying someone for an estimate is no guarantee of that pricing either. It is a third party opinion and it's up to you to negotiate to it.

    There's plusses and minuses to it. Just be aware of what you will get and must do and are expected to do with each option.

    Tim

    - wondering if I should be teaching an estimating class....lol.....

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  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Thanks for all the advice. An interesting opportunity just came up- I received an email from one of my professors saying there's an appraisal firm near my home looking for an appraisal intern for this summer. The intern would do inspections with senior appraisers, research comps and photographs, and other field work to help the appraisers. The intern will also be exposed to a wide variety of residential and commercial property types.

    Would this be of something of interest for me if I'm trying to learn how to estimate repair costs and ARV? It seems like I would be getting free lessons while also potentially opening up a full-time job which I could use to fund my wholesaling business and buy investments. Any opinions on this?

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  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    16y

    It won't really teach you repair estimating but that's not a bad thing per se. Market appraisals determine what a home will sell for in a given market. Repair costs are pretty fixed no matter what the home will sell for or it's market value is (South Holland house vs. Navy Pier again).

    The confusion is that sometimes insurance adjusters are asked to do "damage appraisals" which are just estimates really. Has nothing to do with what appraisal firms do.

    All that being said, working with an appraisal firm WILL definitely help you in learning a critical element of wholesaling - knowing values now and After Repair Value. I would certainly take the opportunity to learn this, just be aware of what skill for wholesaling you will be learning. You need accurate ARV AND repair estimates to effectively present wholesales and this looks like a great opportunity to learn one of them.

    Just out of curiosity (I have 2 friends that own appraisal firms in Chicago) what's the name of the company?

    Good luck with it.

    Tim

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  • Mike Haro
    Real Estate Investor · NW, IN · Member since 2009 · 45 posts · 15 votes
    16y

    Tim has mentioned some good points. The first thing most contractors will ask is if you own the property. If the answer is no 9 times out of 10 they won't waste their time. However if you offered to pay for their estimate i don't think any contractor would refuse.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    16y

    Tim's estimate of $95/hour is pretty reasonable in my experience if the contractor/estimator doesn't have an opportunity to win the bid (for example, Tim wouldn't actually get paid to be your GC, so the only compensation he would be getting is the hourly wage).

    If you have the property under contract, and you're looking for bids, there should be no cost whatsoever.

    And if you have a property that you expect to get under contract, are looking for a contractor to help you with repair estimates, and there is a chance the contractor will get the work should you purchase the property, a flat $50-75 is reasonable.

    The key is, the more opportunity the contractor has to make money on actually doing the work, the less he should get paid to provide an estimate.

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  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Sorry I've been away for a few days-

    Tim, you definitely brought up some good points. The company is Real Property Advisors in Burr Ridge. It would help with one of the two skills a wholesaler needs as far as estimating value. However, I think estimating repairs might be the harder part since the ARV can be drawn from looking at comps.

    J Scott, would I expect to pay the full $95 or so since, even though I may be looking to or actually have the property under contract, I know that I am going to be assigning that contract to somebody else who likely has their own contractors or does the rehabbing themselves?

    I'm still really looking for more advice on how to learn how to make estimates myself because having to pay for a contractor's estimate on a house will kill me unless I know for sure that I will be able to turn that house into a deal. Are there any good books or checklists that might help me at least be able to throw out ballpark figures until I gain enough experience to become more accurate? I know you learn with experience, but I can't gain experience unless I get started and I can't really get started if I don't know how to analyze the associated repair costs.

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    16y

    If you are wholesaling, the contractor just about has zero chance of doing the work, so you have no business asking for free estimates. Using people doesn't serve you well in a business where reputation counts.

    Until you have more experience, don't deal with houses that need serious repair.

    You can estimate roofing costs by the square and carpet by the square foot.You can easily estimate painting costs by the size of the house.

    You can walk through Lowes and get the price of a water heater and kitchen cabinets.

    Big heating contractors will give you a by gosh and by golly ballpark price if you explain that you just need a vague idea and haven't purchased a house, yet.

    Any removing of walls or the addition of anything new that involves plumbing can get really expensive, so don't buy those houses when you are starting out.

    Then don't give your buyers an estimate of costs. Give them a list of what you can see that needs repair and let them figure their own costs. What might cost you $5,000 to do, I might be able to do for $1,000.

    On the flip side, if you tell me a house needs $800 of repair because you think all it needs is the walls washed and new paint for fire and smoke damage, I simply will not look at anyhing you offer me again. I'd consider you to be a time waster.

    1Reply
  • Sage Jankowitz
    Residential Real Estate Agent · Somerville, MA · Member since 2009 · 195 posts · 32 votes
    16y

    I'm a fairly new wholesaler with about six months experience and I ran into the same problem. About three months in I connected with an experienced general contractor who has worked on a number of rehabs for many successful investors in my area. He's looking to get into his own rehabs ASAP, so we came to an agreement: Anytime I find a qualified property he'll check it out with me and estimate repairs free of charge. He'll have first dibs on any property I get under contract, but if he doesn't want it or can't get the funding within a week, I open it up to anyone on my buyers list. It's win-win because he gets to look at qualified leads for free all the time and has first dibs on every property I come across. And I get free estimates and a wonderful education in the process.

    I've learned quickly that it's all about forming partnerships and alliances to help one another out. Find out who you need on your team and then ask yourself, what can I do to help them? Offer your benefit to them first and then ask if they can help you (most newbies get this reversed). You'll have much more success then trying it the other way around!

    6Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    As an experienced rehab investor, I would strongly disagree with the per sq. ft. estimating as Tim and others pointed out how every property can have a multitude of variables depending on scope of work and quality of materials used, not to mention the fact that one investor may be able to do the exact same job as another for thousands less.

    I recommend you learn exactly how to estimate on your own - it is not that hard once you learn.

    Sage and PNW also made valid points that this IS a RELATIONSHIP biz and having contractors bid on the understanding that they could get the work when indeed you intend to wholesale, gives that contractor 0% chance of the job and is not a good biz practice in my book.

    Sage gave a great example of how to build a relationship and create a win win for both parties.

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  • Sage Jankowitz
    Residential Real Estate Agent · Somerville, MA · Member since 2009 · 195 posts · 32 votes
    16y

    Two other incentives you could offer a GC just off the top of my head:

    1. You're reguarly in contact with X amount of cash buying rehab investors who are always looking for new GC's.
    2. Often I come across leads where they don't want to sell their property but they want to fix it up. Guess who I recommend as a GC?

    I'm sure if you spent 15 minutes you could come up with a bunch more...

    1Reply
  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Thanks everyone for some excellent advice. Sage, I especially love what you have managed to do with your GC. That sounds like a great relationship and just might be exactly what I need to get started in wholesaling and learn the ropes of rehabbing as well. Nationwide, I agree that would definitely be bad practice and would spread a bad word throughout the local contractors about my business. If I called upon a contractor for an estimate, I would pay them for their time. However, as Sage suggested, I am going to be thinking of other incentives that I can use in order to avoid these costs and pay the contractor back in ways such as first dibs on free leads and referrals to both investors and owners.

    0Reply
  • Guy Berry
    Real Estate Consultant · San Jose, CA · Member since 2010 · 1 post · 0 votes
    16y

    the construction industry has a manual that contractors use that estimates prices based on regional areas. Here is the website for the publisher of several of them.
    http://www.marshallswift.com/c-1-residential-products.aspx

    0Reply
  • James Blakeley
    Wholesaler · Dallas, TX · Member since 2009 · 48 posts · 21 votes
    16y

    Great post, thanks to all for the comments. Excellent advice offered here.

    0Reply
  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Thanks, Guy! That should be a great resource

    0Reply
  • Chris Calabrese
    Residential Real Estate Agent · Mt. Pleasant, SC · Member since 2010 · 257 posts · 130 votes
    16y

    It doesn't seem unrealistic that a contrator that quotes a repair could get the job from the buyer. Pay the contractor a flat fee per house, pass the repair estimate along to the buyer, and ask the contractor to refund the fee to you if he gets the job. You will probably get a better estimate if he thinks he can land the job too.

    Originally posted by E. Jacobs:
    Thanks everyone for some excellent advice. Sage, I especially love what you have managed to do with your GC. That sounds like a great relationship and just might be exactly what I need to get started in wholesaling and learn the ropes of rehabbing as well. Nationwide, I agree that would definitely be bad practice and would spread a bad word throughout the local contractors about my business. If I called upon a contractor for an estimate, I would pay them for their time. However, as Sage suggested, I am going to be thinking of other incentives that I can use in order to avoid these costs and pay the contractor back in ways such as first dibs on free leads and referrals to both investors and owners.


    0Reply
  • Donna S.
    Real Estate Investor · Triad, NC · Member since 2010 · 38 posts · 9 votes
    16y

    There are several estimating software programs available that are used by insurance adjusters (like me) but also have contractor's versions widely used by restoration companies like Servpro & Service Master. My favorite is Xactimate. It can be a little tricky to get the hang of but you can download a pricing database that includes almost everything you could think of putting into a building for almost any zipcode. If your not sure of what your doing, the software shows pictures and full descriptions of the materials and repair operations. It requires a subscription fee that may not be cost effective, but then again, how costly would it be to underestimate your repair cost by 5-10,000 while you are trying to learn the ropes. Just a thought.

    1Reply
  • E. Jacobs
    OP
    Real Estate Investor · Chicago, IL · Member since 2009 · 91 posts · 22 votes
    16y

    Chris, you are right that it isn't too unrealistic that the contract could get the job. However, it is more than likely that an investor going into a rehab deal is going to have a team of workers or contractors that they commonly use. But you are right, a good investor should always be comparing quotes, and if the contractor who gave you the initial estimate beats that of the investor's contractors, you may have found that contractor some new business. The only risky part is that I'm assuming only a small percentage of houses you look at are going to close with a successful deal, so you may be paying for a lot of estimates and not cashing in on any of them. Personally, I can't afford to be burning hundreds of dollars getting estimates on each lead so that I know what I can offer. There is no way to guarantee the seller will accept my offer or that I will be able to find an end buyer, so there is a lot of risk involved in putting money up front and paying a contractor to do an inspection. That is why I think that so far the best options are of course to either learn it yourself, partner up with a contractor who will inspect for other forms of compensation or profit sharing (no flat fees), or as Ruby just mentioned, using some form of software to estimate the costs for you. Maybe when you get big and are more efficient about your leads, you will be able to afford paying those flat fees because you will know what leads have a high chance of closing and you will know when or when not to bother paying for an estimate. But by then, you should just know how to do it yourself!

    0Reply
  • Account Closed
    Wholesaler · Chicago, IL · Member since 2011 · 219 posts · 38 votes
    14y

    Hey E. Jacobs,

    Props on starting your own wholesaling business. I have been doing the same thing and started about a year ago.

    0Reply
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