One of the most important aspects of property investment, particularly for fix-and-flip-type investors (but useful for everyone!), is the ability to assess how much you’re going to have to invest in a property to get it into the condition it needs to be. That’s not an easy skill to learn! Furthermore, it’s a skill that strictly follows the old adage: “You got quick, cheap, and accurate—and you can only choose two.” You can evaluate home repair costs quickly and accurately, but cheap won’t come with it. Sorry!
The question then becomes “how much will you pay,” and the answer is “somewhere between $50 and $5,000.” There is a plethora of tools and services out there that can evaluate repair costs to a surprising degree of accuracy—but almost all of them come with a whole mountain of other functionality that you might not want, and you’ll always end up paying for it. (Speaking of paying for it, did you know BiggerPockets has already produced an entire book on this subject? You can buy it here if you want a bunch more detail on this subject.)
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Software for Evaluating Home Repair Costs: Never the Right Choice
The obvious place to turn for a tool to evaluate home repair costs is your computer—but it flat-out doesn’t work. There are a number of great tools for contractors to estimate the costs of a job, but they require that you:
- Know what materials you’re going to need to do the job, and
- Know what those materials cost at your supplier of choice.
If you’re a property investor trying to determine the total cost to repair/renovate a property you’re only considering purchasing, these programs are going to end up not much better than a ballpark guess. But because there will definitely be some people out there who insist on trying, here’s our best advice regarding home repair costing software.
Skip Anything that Smacks of “Enterprise Management”
There’s a ton of these: BuilderTREND, Co-Construct, ProCore, and the list goes on. These tools are the very definition of “other functionality you might not want.” If your repair-cost-evaluation software offers things like Contact Management, Financial Job Tracking, and Branding & Marketing Customization, you’re paying for a bunch of stuff you don’t need. Yes, you do have to pay for quick and accurate, but you don’t have to pay that much.
XactRemodel: The Useless High-End
There’s an amazing tool used by insurance companies as well as builders to estimate building repair and renovation costs—it’s called XactRemodel, and it costs $89/month (or a mere $599/year) to access. It provides a great example of how paying a bunch of money for a specialized tool can be a complete waste. That’s correct, XactRemodel has an amazing database of prices and regional economic variables that it uses to unerringly give you the big-box retail costs for just about anything you could do to your home.
Problem being, an investor can’t afford to spend $420 on a brand-name garbage disposal installation from Home Depot or whatever—not when a local contractor can install a $50 refurbished disposal for $70 in parts and labor! XactRemodel sounds amazing, and it probably is if you’re a construction company—but for a private investor, it (and several other tools of similar scope and cost as it) is just not the right tool.
GeneralCost Estimator: Inexpensive and Usually Ineffective
GeneralCost Estimator isn’t a standalone tool—it’s a very advanced Excel spreadsheet that relies on standardized prices and city-by-city purchasing-power multipliers to come to a decent estimate of what any given item will cost in your area. The upside is that it costs a mere $65 (one time!), and it’s decently accurate in its estimations. The downside is the one mentioned above—you have to take the time to consider exactly what is going to go into your renovation and put each of those items into the spreadsheet. So while it’s great if you can plan your entire renovation out before you purchase the home, it’s not so great if you don’t have that opportunity. Still, it (or at least something like it) is probably the best tool you’ll find for actually getting reliable estimate on home repair jobs. That’s not a good thing, by the way, because there are other, better options—just not in the digital realm.
OK, so software isn’t really what you want. What are your other options? Let’s look at what it takes to hire a professional to estimate a job.
Aren’t Estimates Supposed to Be Free?
If your project is extremely simple, maybe—but if you’re worried about accurately estimating costs, that’s probably not the case. You can expect a professional to charge you for an estimate; the question is how much. You might find yourself being asked to pay:
- A “trip charge” for the time and expense of driving out to the home,
- Possibly an additional fuel charge if the home is particularly far away,
- A diagnostic fee for estimate on any problems they can’t immediately see,
- A design fee for an estimate on renovations that go beyond simple repairs,
- A service fee if you get an estimate and then don’t hire that contractor to actually do the job,
- Or something even more creative.
On the average, you can expect a professional estimate to run somewhere between $50 and $150 unless you hit that design fee. Estimates on renovations can run 5x as high as estimate on repair costs because it’s not that easy to design something new.
What Should a Real Estimate Contain?
When a professional comes in and gives you a proper estimate, it should be more than just a number you can expect to pay. An estimate from a quality contractor should tell you:
- The scope of the project, broken down into which contractor or subcontractor will be responsible for which aspects of the job,
- The time it will take to get the job done,
- The terms of payment,
- The labor cost,
- The materials cost,
- The permitting cost, and
- Any other miscellaneous expenses that will be incurred.
In addition, each estimate should come with proof of the contractor’s license to do contracting work, as well as proof of their insurance and bonding. Ideally, you’ll also receive some sort of certification or other evidence of their expertise in their specific field as well.
The Proper Process for Getting Estimates from Professionals
Getting an accurate estimate on home repair costs isn’t as straightforward as “ask a general contractor to walk through and give you a number.” That’s a good way to get a ballpark figure you probably could have gotten from a site like this one. You need to follow the process here if you intend to get results that you can use.
Step Zero: Establish your financing (if any).
Before you start thinking about getting estimates on your home repair costs, make sure you know exactly what you can afford to spend. Get any loans pre-approved, and if possible, make the deal contingent on your actually getting those loans. This will keep you from spending money getting estimates you may never be able to use. Just as importantly, it will give you a solid number you can bid up to once you get the estimates in place.
For example, if your financing gives you a hard cap of $180,000 to spend and the estimates add up to $66,500, you should promptly multiply the estimates by 1.2 (to create a vital safety factor to compensate for things going wrong) and then subtract the new number of $80,000 (close enough) to arrive at a maximum final bid of $100,000 for the structure. This is why you want the estimates in the first place, so if you don’t do this part, you’re wasting your own time!
Step 1: Assess the structure (if necessary).
If the building has major structural damage (i.e. dipping ceilings or obviously off-level floors), you should hire a structural engineer to examine the home and give you a conservative appraisal of how much it will cost to make it habitable. Structural engineers don’t come cheap—expect to spend $500 or more for this kind of service. In fact, in most cases, you should just not make a bid on a home with obvious structural damage unless you can get it for a genuinely ridiculous price.
For example, one woman we know purchased a home for the price of the property underneath it because it was so structurally unsound that the owners would have had to pay to get the home demolished—so finding a buyer willing to pay the land’s value and keep the building was actually a win for them. That’s the kind of deal you have to stretch for if you intend to buy a home with major structural damage!
Step 2: Assess the common dangers.
Most home inspectors will have the tools on-hand to be able to check for all of the ‘classic’ dangers of old housing—but if yours doesn’t, be sure you hire an expert to check for:
- Lead-based paint,
- Lead in the water,
- Toxic mold,
- Hidden pests,
- Problems with the septic system and/or well, if any,
- Flood danger, and
- Any other known but hidden dangers unique to your area.
Step 3: Assess the innards.
The next step is what you expect from a home inspector: a summary look at the problems with the house’s basics. This involves:
- Exterior concrete and flatwork,
- Exterior and interior walls,
- Plumbing, electrical, and HVAC,
- Windows and doors,
- Closets/shelving and other built-ins, and
- Framing and trim.
These are the parts of a home that must be in good repair before a home can be certified habitable, so assessing every single one of these is vital.
Step 4: Assess the details.
The rest of the bits and pieces are things you will almost always have to touch up before you would try to rent or sell a home, but you may be willing to tackle doing yourself or with hired help less professional than a full-on contractor. Nevertheless, you should get them included in any estimate you have made.
- Exterior and interior paint,
- Landscaping and yard cleanup,
- Appliance installation,
- Garage repair,
- Fencing, and
Step 5: Finally…
Lastly, make sure that whatever bids you get include the costs of the background details necessary for getting the home repair done. We’ve seen contractors hand out bids that don’t include these costs simply because they’re neither “parts” nor “labor.” Make sure you gets costs for:
- Garbage disposal, and
- Staging, if relevant.
You’re hopefully starting to understand now why exactly it can cost a few hundred dollars or more to get a proper estimate—and why, in the real world, “quickly and accurately” can mean “in less than a week and within 15%ish.” It’s not easy, and it’s certainly not as convenient as the software-based tools make it sound like it could be—but it is the best version of “quickly and accurately” estimating home repair costs that you’ll find.
If you have a contractor that you trust and have a standing relationship with, take their estimate and run with it. Otherwise, the old wisdom that you should hire at least three different contractors to evaluate home repair costs independently is true. which means three times the cost and often three times the time. But it’s the start to establishing the aforementioned relationship, and it will give you an idea of which of the estimates is the right one for you, which makes it worth the extra time and money in spades.
Do you follow these steps when estimating repair costs?
Let me know your process with a comment!