Real Estate Broker · IL · Member since 2016 · 284 posts · 178 votes
I'm by no means ready to invest just yet. I am still doing research and saving $. In the mean time I'm trying to learn as much as I can. What is the best way to account for repair costs on a house? If I see a house for $40,000 but it needs new windows, doors, siding, roof, carpet, paint, flooring, etc.....what is the best way to get a rough estimate on repairs?
What's the best way to get a rough estimate on the costs of those items/labor without having to call a construction company to come out and look at every single house you're looking at? Or do you have someone come out every single time? I just want to learn how I can do some rough estimating on my own before calling someone in if that makes sense.
Your question points up the importance of networking.
Build your personal network to acquire such resources as contractors as others who can help you with your "damage" assessments and repair estimates. Having those relationships can help control the costs involved. Often times, you can exchange favors in lieu of cash payouts.
Also, include private lenders in your network. Having the relationships already established helps fend off SEC issues when you get to the point of actually tapping your network for money partners. That way, you can devote your personal savings to your personal needs rather than using it to fund a business.
@John Burtle - take a look in the books section of the website. There is a book on flipping houses in there by J. Scott. If you buy that book, you get a bonus book on how to estimate rehab costs. I haven't read it, so I can't speak to how good it is, but it is on Amazon with very good reviews.
Other than that, the best education on how to estimate rehab costs will happen, over time and with more experience. That is how I learned (and am still learning). You will get a "feel" over time, and when you aren't sure about something, call an expert for help.
Your question points up the importance of networking.
Build your personal network to acquire such resources as contractors as others who can help you with your "damage" assessments and repair estimates. Having those relationships can help control the costs involved. Often times, you can exchange favors in lieu of cash payouts.
Also, include private lenders in your network. Having the relationships already established helps fend off SEC issues when you get to the point of actually tapping your network for money partners. That way, you can devote your personal savings to your personal needs rather than using it to fund a business.
Generally speaking, the best way is to get estimates. The thing is - you don't have to be project-specific. You can call and ask general questions, like:
How much is install labor per opening on window/door/slider?
How much is install on 1 square of roofing, with and without tear down?
How much is install on 1 square of siding?
So on and so forth. You can then call stores and get pricing on materials.
I can tell you that 10 years ago I could do roofs for $200/square materials and labor. Today, it seems to go for $300/square. I am doing several right now and paying about $240/square, including tear off. Obviously volume and repeat business has a positive impact, but you can get within 20% accuracy by simply making some calls.
I know 20% margin seems like a lot, but as a newbie you should be working on those margins anyhow.
Yes, it comes with experience for sure. Good points by both @Michael McDeviit and @David Dachtera.
Be advised, you will go through a period of hesitation with your first rehab, it's normal. You need to have a good feel for the end results of your first project, have confidence, and pull the trigger...a lot of investors don't. As David says, have a good team behind you (contractors, large or small), and a good realtor (if your going to flip). You'll be amazed what you can do once your "in the middle" of the project. After that first project, things that were somewhat frightening in the beginning will fade on your next project. My takeaway...Everything can be fixed!
Another tip...don't get to emotionally attached to the project, keep it simple and practical for the potential buyer...don't do the rehab as though you were going to move in. Make sure you concentrate on the stuff that sells (good colors, updated kitchens and bathrooms)!
As an exercise, I've used a couple generalized numbers. They're not the best numbers, but at least something until you get the swing of estimation from your own experiences. I've used $10 - $15 per total square foot of the house for very light rehab work, $20 - $25 for medium, $30 - $35 for heavy and $40-$50 for total gutting.
Again, these aren't accurate, but they'll give you an idea as to the numbers you should be looking at.
I define very light work as painting, carpet and cheap tile.
This should give you a very general overview. I do love Ben's idea of asking contractors for pricing of 1 Sq items. Makes things easy to understand.
I talked to a local construction company today. He also gave me good advice and said he'd love to work with me when I was ready. He offered to go with me to look at houses when I was ready.
I'm going to keep pushing forward and continue to read and plan.