How to determine renovation costs?

Question

Hello,

I am brand new to this website and have started reading some of the bigger pockets books to educate myself. My girlfriend and I have decided that we want to buy our first home this summer, and we are looking to get a multifamily and live in one of the units.

Through the reading that I have done so far, it is recommended to buy a property at around 80% of what it is actually worth, that needs some work done so you can get some forced appreciation. The part that I am really struggling with is being able to walk through a property, see the state that it is in, and determine how much money I would need to fix it up to realize that forced appreciation. Does anyone have any suggestions on books or any other way of learning how much these renovations will cost. Or is this one of those things that you just have to figure out as you go?

Thanks for any help.

Jim Cummings · Answer

@Aaron Misiph. There is no better way to get a handle on cost than to have a contractor put a number on it for you. But in the initial phases of "can I make this deal work" you need some good basic "rules of thumb" to use.

One way to get a handle on costs is to break the home into components, and cost out certain items. So, walk around your home and start measuring.

For Instance, most secondary bedrooms in my area are on the range of 10 X 10 - 12 X 12 , so  use the upper range 12 X 12 = 144 SF. Depending on the closet style, it will be most likely 2 X 5 or 4 X 5. So use 4 X 5. So for flooring, you can standardize a typical secondary bedroom at 144 + 20 = 164 SF. Add roughly 10% for waste and round off at 180 SF of Flooring. You  can go to big box store and determine how much carpet or other type of flooring will cost. Again using that same 12 X 12 bedroom, I'll need  (12+12+12+12 = 48) and (4+5+4+5 = 18) 66 Linear Feet of baseboard.  Probably don't need to add waster to baseboards, as you didn't subtract for doors. Cost it out a big box store. Price out out a typical light fixture or ceiling fan and light fixture. Figure one electrical plug for each wall, double gang wall switch (light and separate fan switch).  Windows - call around and get some ball park prices for windows including installation, or again you can get an idea at big box store of price for typical window unit. Changing out the doors - determine the cost.

Add it all up and you have the material cost for a typical bedroom. Multiply times the number of secondary bedrooms, and you have an easy planning figure. Master Bedroom are larger, so you have more materials, but same principles apply.

Kitchens: Determine a Cost for Cabinets, Appliances, Flooring, Lighting, Plumbing Fixtures, electrical plugs, etc.

Bathrooms, again, you can easily determine the material costs of the necessary components. Bath tub, Plumbing fixtures, lavatories, toilets, flooring, lighting, electrical plugs and switches, etc.

Most painters are hired to do the whole interior of house, so figure $1.50 - $2.50 per square foot. So 1500 SF House will cost roughly $2,000 - $3500.  Pick a number in the middle.

I haven't covered all the typical rooms in a house, or all of the typical components, but hopefully I've given you some ideas to get started. So get your tape measure, and start measuring.

Michael Garofalo · Answer

No problem. More seasoned investors may have a slightly different opinion, but I would define a cosmetic rehab as anything involving flooring, appliances, painting, and vanities/attached items (such as  the toilet, bathtub, other components that make up a kitchen). A full gut would entail more complicated electrical, plumbing, and structural work, and you'd basically be rebuilding from scratch, starting from the studs.

My personal recommendation would be to stay away from anything with severe foundation issues, and also make sure you understand the condition of all the big ticket items such as the roof, HVAC, water heater, and electrical/plumbing systems before making an offer. If you have any other questions or need additional insights, definitely feel free to PM me!

Michael Garofalo · Answer

Hey Aaron,

Each rehab is different and a lot will depend on the trustworthiness of your contractor (unless you are able and willing to do the work yourself). For starters, a good high-level estimate would be $25/sq ft for a full interior/cosmetic rehab, and $50/sq ft for a total gut (this would include labor and average materials, not top of the line). That being said, estimating rehab costs is an art, not a science, and there are many variables at play. Just remember that unexpected challenges and issues may arise as you get into the construction, so always keep that in mind and plan accordingly (for both scheduling and budgeting purposes).

Michael Kistner · Answer

@Aaron Misiph,

It's more common to have the contractors to buy the material but you can if you prefer to. I have a Lowes Credit Card and will do the work myself in California but obviously can't in Texas. But I just had a bathroom remodel done in Texas and still purchased all the material and had it ready for the contractors to pick up.

Now Lowes isn't always the cheapest and best quality material but you do save at least 5% every time you use their card. That should add up over time.

When working with the contractor and getting bids make sure you get an itemized bid. Then you can see what they're charging you for material and can always do some shopping around yourself.

If you decide to have the contractor buy the material and do the work ask that he gives you a copy of the receipts for the material with the invoice. I've never had any push back with the request and if I'm ever audited I will have more detailed receipts.

Hope this helps!

Thanks,

Mike

Brian H. · Answer

@Jim Cummings  Thanks so much for that breakdown. Having all the numbers and your rough averages in there is really helpful, I think, to newer investors, like myself.

@Caleb Heimsoth  I honestly have yet to ever watch one of those shows.  I always figured their numbers are insanely skewed. They probably get so much free stuff just for putting certain companies on their shows.  But, people like seeing those big wins, which you get in the sort of scenarios where companies just give you stuff for free advertisiting. haha

Aaron Misiph · Answer

Hi @Michael Kistner,

Thanks for the reply. In regards to working with contractors. If I decided that I wanted to hire contractors to do work, instead of myself, is it normal to buy all the materials myself and then just have them do the work, or is it normal for them to buy the materials?

Thanks,

Aaron

Michael Kistner · Answer

Hey @Aaron Misiph,

If you're not able to do the work yourself I would start asking around for contractors that friends or family recommend. Also check out angieslist and thumbtack for local contractors and go through the reviews.

Don't be afraid to call a few and ask them what kind of work they do. Most of them specialize in something. Ask them their hourly rate because that will be your biggest expense.

Hope this helps!

Thanks,

Mike

Aaron Misiph · Answer

Thanks, I appreciate the info!

Aaron Misiph · Answer

Hi Michael,

Thanks for the reply. Could you go into more detail about what you would consider a full gut vs cosmetic rehab?

How to determine renovation costs?

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