I would like to know how do wholesalers when they are trying to make deals how do they find how muc the fixed costs and rehad cost on a house?
I'm not a wholesaler but Jay Scott's book on estimating rehab costs was helpful for me in estimating rehab costs. BP also has a calculator for that.
You will want to get a pulse of the costs associated with various things, at a local level.
Call local painters and ask them their per sq. ft price, for all the options
Call local plumbers and get their per hr or flat rate price on the most common things. Water Heaters, unclogging drains, replacing faucets/toilets..etc
Call roofers and see if you can get rough pricing from them, if they won't, schedule an estimate. With any contractor though, don't take advantage of this. Be prepared to offer them something and be honest with them.
Visit your local Home Depot/Lowe's and get their installed prices for any service they offer, then deduct by a conservative 20-30%.
This will get you a good understanding for the time being, as you look at more and more deals, it will become 2nd hand knowledge for you.
@Harold Smith Find a contractor, pay them for their time and take them on your appointments with you until you feel comfortable estimating repairs yourself
If you are going to be wholesaling deals to rehabbers you need to think like a rehabber and analyze the deal like rehabbers in your market.
Talk to local rehabbers in your area to determine what % of ARV they shoot for when buying the property. The standard 70% Rule is 70% of the ARV - Repairs, but rehabbers may be willing to pay 75% or more.
The 70% of ARV essentially discounts the property 30% to account for your fixed costs & rehabber's profit. Generally, the 30% breaks down to 15% for fixed costs & 15% for the profit. So on a $200k ARV property, that would be $30k in Fixed Costs & $30k in Profit for the Rehabber.
As far as estimating rehab costs it really takes experience to accurately estimate costs. Here is the process I generally recommend for learning how to estimate rehab costs:
#1 Read the Book on Estimating Rehab Costs
JScott's 'The Book on Estimating Rehab Costs' is a great resource for new rehabbers to learn how to Estimate Repair Costs on 25 common rehab repairs.
#2 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.
#3 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.
Note: Some contractors will be reluctant to share pricing without seeing the property, but tell them you are just looking for a rough budget number you can use on future projects.
#4 Compile Your Prices into 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.
The Book on Estimating Rehab Costs comes with a spreadsheet that you can use to help you populate your own database of labor pricing and material pricing. Or you can download my estimating templates I have in my Biggerpockets fileplace:
There are other Estimating Softwares available as well which can help you manage the Estimating process as well...
#5 Practice, Practice, Practice
Walkthrough potential rehab properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.
If you are not willing to put in the time to learn, then you need to find someone that has construction experience that can help you with this process.
@Lydia T. Do you if Zillow is a good place to find home for sale by the owners
@Scott Jensen @hey what's the full title of the book I want to see if it's on Amazon
@Harold Smith I would advise you to stay away from fsbos. They are typically investors who dont need a realtor or homeowners that dont want to pay an agent. You really need to be marketing to generate off market leads. Thats the value that a wholesaler brings to the table, finding a deal that the investor wouldnt have gotten without you.
@Lydia T. Why would you stay away from FSBO? That's saving both you and them money. Anyone who is doing more i.e. having licenses in house to keep costs down is a savvy investor in my opinion.
@Harold Smith I buy majority of my properties from wholesalers. I disagree with their rehab costs 100% of the time. Maybe their standards are different. You HAVE to be doing your own research and due diligence.
@Mike Palikij Every market is different. Here in my market FSBOs are 99% people who want retail and dont want to pay 6% of their sales price to a realtor. They are not looking to sell at a discount.
@Mike Palikij what is FSBO?
@Lydia T. I am a newbie pretty much I am trying to figure out how to go about wholesaling a house step by step because I don't know what to do and want to figure things out and organize myself before I do this
@Harold Smith FSBO is for sale by owner. I would suggest taking some time to get educated. There are some good books out there. I meet a lot of uneducated or poorly educated wholesalers. They dont last very long.
@Lydia T. Any recomdendations
@Harold Smith If you cant wholesale after this Ive got nothing for you... is a pretty comprehensive book. So is finding and funding great deals and the book on negotiating real estate.
FORGET THE 70% 15% 382749% rules.
Those things are just retarded stupid make no sense and will mess you over. That is complete bogus.
The best answer simply is, "pretend you are end buyer", and then mind all the costs an end buyer has, then then add your fee to that cost.
The challenge here is you need to evaluate if the property is a good flip, or if it is better for buy and hold.
If it is a flip, yes figure out holding cost, cost of money insurance lending cost closing cost holding cost, "Ohh crap this didn't just happen" costs, utilities, repairs, cleaning marketing costs.
If it is a buy and hold, a ton of these costs will not be present and some will be lower, so your wholesale price differs depending on the property being a flip property or a B&H property.
The 70% rule is crap because the 70% rule doesnt account for the house being in a war zone, busy street, near an awesome school, and no the ARV doesn't take care of this. It is a lot more involved than that.
The biggest thing lots of wholesalers do not account for is that they need to determine the best strategy per property. Flip or B&H and base your numbers on that!