Request for help on rehab estimation

[John Mullen]

Hey BP, I have a question for anyone with knowledge of Columbus (or central Ohio, or maybe even the Midwest more generally): how do you like to estimate your rehab costs when analyzing a BRRRR or flip deal? The options seem to be:

- Lump sum (not recommended for beginners like me)

- Price per square foot, with a sliding scale based on approximate rehab severity

- Itemized breakout: most detailed and time-involved but greatest potential for precision

The issue I'm running into with my business partner is that we're both too green to know how to accurately scale our numbers appropriately for 2022.  Ask google and you'll get answers like "the price per square foot to significantly rehab a property can range from $60-$150" and "the cost to replace a roof can range from $5,000-$25,000."  Not super useful or precise. 

To give some specifics, I recently got a trial membership of FlipperForce and practiced analyzing a 3bd/1ba ~1350 sq ft property needing full moderate rehab (re-roof, repaint, replace windows, significant detached garage repair, likely full gut inside).  I used $110/sq ft rehab estimate and compared against my best guess at a full itemized rehab list (I haven't been inside the house), which told me to expect to pay over $270k (including GC fee of 20% and rehab overrun margin of 20%).  I'm no genius, but there's no way either number in my comparison can be right... right?  (See detailed rehab breakdown below)

In a perfect world, I'd be able to just quit my day job and go to work for an established investor.  But as a first step, I'd welcome any constructive input on the following:

- How to pick an accurate price per sq ft to rehab, specifically in the Columbus/Midwest market?

- How to correctly itemize the big things (see list below)?

- How to accurately pick a GC profit margin?

- How to accurately pick an overrun estimate %?

Thanks in advance! 

[Kevin Sobilo]

@John Mullen, someone could teach a whole course on this subject. So, I'll only give a couple suggestions here.

I think your estimate worksheet is a good start! First thing to realize is that NOBODY can come up with spot on estimates on their own. So, you aren't much different than someone with more experience. The only difference is that their estimates might be closer on average than yours.

So, what I do is add a "% Confidence" column and assign a % value for how confident I am in the estimate based on my experience with that line item.For a line item I'm pretty sure about I might use 90% and for one I'm VERY unsure of I might use 50%. 

Then I use that % Confidence value to calculate values for two other columns a "Low Estimate" and "High Estimate". So, for 90% confidence, that would create a low estimate 10% lower than my initial estimate and a high estimate 10% higher than my initial estimate.

In this way, I can take into account how sure I am about each estimate I make and factor in my experience level into my estimating process!

Then when I'm done I look at my initial estimate total and my high estimate total. My goal is the initial estimate total and if I am still making money at the high estimate its a good deal!

My second piece of advice is to study a little about project management. One of the basic principles of project management is that there are 3 aspects of a project: Scope, Money, and Time. If you change the Scope, you will either need more Money, Time or both. The 3 thing are related. So, that as you make decisions during a project you can choose to work these aspects to bring the project in.

For example, if you have a project where the holding costs are low and you come across a new issue that a contractor wants to charge a large amount for blowing your budget, you could choose to take on some of the work yourself to keep the money the same as estimated. In this example you are sacrificing Time to save Money. You might change the Scope of the project as well, there are always choices to make. The idea is that after the estimate there are MANY decisions you can make to bring a project to a successful finish.