Learning Construction Costs

[Jacob Spain]

Hey guys!

I'm a brand new investor, and I'm looking to get into single family flips. I'm having a hard time with the construction cost estimate portion of the calculators though, as I have no idea how much it costs to remodel things. Anyone have any advice on learning how much it costs to renovate houses?

[David Robertson]

Hi Jacob,

Learning to estimate construction costs takes time & experience, but here's the basic process that I would recommend to help you get the process started.

1. First, I would probably recommend reading a little on the subject of Estimating Rehab costs...JScott's The Book On Estimating Rehab Costs is a good resource to learn how to estimate 25 common repairs.  It also provides basic pricing ranges and discusses the different factors that influence pricing.
2. Next, I would compile a list of these common repairs into a spreadsheet to help you get organized
3. Once you've got your spreadsheet compiled make some trips to Home Depot or Lowes to get a feel for how much materials costs for flooring, tubs, toilets, lighting, etc.
4. As Jim suggested there are good resources for Labor costs such as RS Means, but the best and most accurate source for labor costs is to contact local contractors.  For example, a Roofing contractor should be able to quote you a rough price over the phone with some basic information (size of roof, slope of roof, type of roof, etc.)...
5. Put your spreadsheet to work and start practicing estimating and analyzing deals.  Find potential rehab projects in your area and start calculating quantities of materials and plug those values into your spreadsheet to estimate your projects costs.  Study those costs and get a feel for how much your costs are breaking down for each category or area for the project.  
6. Include contingency!  As a new rehabber I would recommend including a pretty substantial contingency in your estimate (probably 15 to 30%+).  The contingency is used to cover risk...Risk that you missed/forgot estimate items, risk that you underestimated items or risk that something unanticipated needs to be repaired.  A easy cosmetic rehab would have less risk & less contingency than a large historic gut rehab project.  
7. If you don't feel comfortable estimating costs, you need to hire someone for your team that can help you with this process.  Most Contractors won't provide a free estimate unless you have the property under contract, so you may have to pay a GC ($150 to $250) to come out and provide a preliminary estimate.
8. Otherwise, if you do make an offer on a property make sure you have an Inspection Clause that allows you to renegotiate the deal if repairs are more than initially anticipated.
9. Once you complete your first few rehabs you will have much better intuition into what repairs cost in your area.

I have a spreadsheet in my fileplace that you can use for a template if you are interested, see below:

https://www.biggerpockets.com/files/user/drobertson/file/house-flipping-spreadsheet-6-lite