Being able to quickly and accurately estimate a rehab is one of the skills every real estate investor should have. When a potential deal comes along, you have to be able to move quickly with your analysis because someone else is often right on your tail. Many times you will need to go to the property, estimate the necessary repairs and work up an offer in less than 24 hours, as true deals will not stay on the market long.
The trick therefore is to be quick, but also not to miss anything. And the key to not missing anything is to have a checklist listing the major components you need to take a look at. My checklist has evolved over the years from many sources and use in the field. Today it is a simple spreadsheet listing the components outlined below with a box to check if it needs repair or not. Next to that box is a space for a price estimate and then another box for a comment or two.
That’s it. Simple. When completed, I just add up the listed repair cost estimates and I have a total rehab cost.
In this post I want to go over the items on my checklist that I examine when looking at the outside of a property. You can then use them to create your own checklist that works for you. This list is geared toward single family properties, but it could be easily modified to fit any type of property, and I have used it for various property types.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
10 Items to Note on a Potential Rehab’s Exterior
The first thing I look at when going to a property is its situation. What is the condition of other properties around it? What is the street-scape like? Is the property the largest or smallest in the neighborhood? These are not necessarily things I can fix, but they do help when I am trying to comp or price the property later on.
Take a walk all the way around the property while looking at the foundation from the ground to about two or three feet above it. Do you notice any cracking? If so, how large and how much? Small cracks in older homes may be nothing more than some natural settling, while large ones may mean trouble. If you see large cracks, make a note to look inside for other cracks in walls or floors. Take a look also for water and for the path of water. Is water collecting near the foundation, or is it directed away from the structure? Foundation issues can run into the thousands of dollars and can be a deal killer, so look closely. On the other hand, if foundation issues are fixable, they can make a good deal possible. If unsure, seek professional advice or estimate very high.
Take another walk around and now take a look up. Do this as a separate step so you do not miss anything. Look at the shingles. Are they in decent shape? How about the wood around them? Is anything rotten? Look closely at the number of layers on the roof. In other words, is there layer upon layer of shingles? If so, a tear off may be necessary. Smaller roof replacements will likely run you about $5,000, while the largest homes can be $10,000 or more. Most tend to fall somewhere in between those numbers.
Walk around for a third time. The obvious question here is about the paint job. Does it need one? Also take a look at the materials. Is it made of brick, wood, stucco, or siding? Wood obviously rots. Siding falls away and stucco cracks. Do you see anything that needs to be replaced? Poke around a little. Does the wood give? Does a crack get bigger or peel away? If so, look for water damage or even worse, evidence of termites.
Check out each and every window. Are they painted shut? Are they old, single-pane windows? If so, you may need to replace them. Are there storm windows in place? If no, you may want to install some. Replacement windows can run between $120 to over $200 or more per window depending on the style and type needed.
First, make sure the unit has not been stolen. Then estimate the age. If it is an older unit, you may want to consider replacement. If not, you may want to install a cage or other security device to ensure it does not disappear. HVAC equipment is getting pricier and pricier with government mandates, so keep current with rising costs.
Take a general look around at the yard and the landscaping. Does the yard slope away from the property like it should, or when it rains is the runoff going to run into the basement? Try to estimate where the sewer and water lines are located and look for depressions in the ground or unusually green or wet areas. If you see any of these, you may have a leaking water line or collapsed sewer line. Investigate further. Are there tree limbs that need cutting? Bushes that need trimming? Would a bit of landscaping enhance the place? Landscaping and the labor for it can add up quickly, so be sure to budget for it.
Decks and Fencing
Is there a fence or deck? If so, does it need to be repaired or replaced? If not, should one be put in to enhance value and appeal?
Make sure they are in place and on. If they are locked off, you should ask yourself why and budget a bit higher for repairs to get them unlocked and on.
Of course, there can be a myriad of other items you notice when looking at the exterior of a property that you might want to comment on, such as driveway condition or sheds. I just use a catch-all “other” category for those types of things.
Use your checklist every time you inspect a property. In fact, carry some blank ones with you at all times because you never know. Also, take your time with your inspection, even if owner or others are present. Getting distracted and missing something could cost you thousands of dollars.
Next time we will take a poke around the inside.
Investors: What would you add to this list?
Leave a comment and let me know!