I want to start a series of threads for newbies starting out dirt broke like me to utilize as a step by step process (very concrete and not ambiguous) so they can reach their first wholesale deal.
I was reading on this blog written by Brett Snodgrass (some big, successful BP guy)
about how to get an estimate of repair costs for a property you are looking to wholesale. He states that you should find roughly 5 contractors to estimate repair costs. The issue is that if you don't have much money like I; getting these estimates can actually cost a lot of money. Just to try and get an ESTIMATE to make an electric outlet for my stove the other day the electricians wanted $100-$150. If us newbies were to do this 5 times to get 5 quotes as Brett suggested it would be much less feasible to try and wholesale. I commented on the blog and Brett promptly responded that "the better relationship you have with them, the more likely they are to waive a bid fee."
The question is: How do you develop these relationships to that point before making your first deal with these contractors? I think estimating these rehabs, which is essential to the mathematics of determining a proper price to offer your distressed seller and a big reason wholesalers get a bad rep, for a reasonable cost could make or break the beginning wholesaler.
In my experience, the absolute best way to learn rehab cost estimation is to actually flip a house. Once you do one, you'll have a solid idea of what things usually cost. You'll be able to walk through a house and go "5k for this, 2k for that, 3k here...etc"
Till then, you could visit your local suppliers of cabinets, granite, flooring, roofing and see what kind of prices they charge including installation. You should also look up stuff online for Home Depot and Lowes. Look up things like doors, windows, fixtures, lighting, paint, appliances.
Having a bunch of contractors give you estimates every time is going to be just extra work and cost for you! They would probably give you high prices too since they can tell you don't know what things truly cost.
If you want a quicker way to learn to estimate rehabs, then read J Scotts book about Learning Rehab Costs. It'll give you the general costs of pretty much everything that goes into a rehab.
I have read that but not sure if the prices apply to my area of pricey California. I read in Brandon Turner's book that I can find out the cost of materials and double it to get a good estimate of the total cost of materials+labor together. What is your opinion on this?
I will definitely look up those prices online at local stores as well. Would you say J Scotts 25 categories cover everything I need to look up for the most part?
You have to actually use a contractor and give them work before you can build a relationship. No one wants to waste time drafting up a bid for no reason.
@Cody Evans the material and double for labor is one way to go about it. Of course it is far from a science and there are some trades this doesn't work with, but it gets you ballpark. The biggest thing is to make sure you cover for everything. Don't miss the fact that the driveway is trashed in your calculations (while all the comps have brand new driveways). Don't miss the 25 year old boiler, don't assume you can renovated kitchen without having some plumbing and electrical work involved (even minor stuff will cost). These are things you may not know until you are renovating houses, but if you want good rehab numbers, you need to think about it.
Good point. Do you think I should get my rehab numbers and add 10 thousand to them as a safety net just in case I underestimate?
@Cody Evans not being a wholesaler I'm not sure on that. The reason I say this, if I just added $10,000 to my budget, I would never get a house. I have never put an offer on a house where there weren't multiple offers. Adding $10k to my budget almost gaurantees I would never win any bid. In my last market I carried a "contingency" however it was not a huge amount. However I was able to land deals and my budgets were pretty much spot on. In my new market I am carrying a bit more contingency didn't to unknown area, no subcontractor relationships, etc... I am getting outbid on every house now!
Wholesalers may have it easier as there isn't "other bidders". In that case, the extra $10k might be doable.
My closest deal was an off market. They had an appraisal done and it said $160k. My numbers said I could offer $91,500. I actually felt I was insulting the seller. They had another person trying to buy it and I figured they would get more. A few weeks later I was told the other guy offered $80k. I told her $91,500 is my best and if she wanted more, call the other guy with that amount and he would probably give her more. She sold me the house!
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