Should I get a contractor bid before I make an offer? - BRRRR

Question

Hi BP!

I'm just starting out, and will be buying my first SFH rental soon.  I was lucky enough to attend @David Greene's BRRRR Class last night which was amazing. So many gold nuggets - thank you David! One question I forgot to ask is, should I get a contractor to give me a bid before I make an offer, so I can calculate more accurate numbers into my BRRR Calculator? Or am I just guestimating rehab costs very conservately based on pictures, then get bids after I get an offer accepted? The reason I ask - if I'm making say an offer a week, that seems like asking a lot of a contractor to run aroud and give me bids each week, knowing that I won't make a deal on most of them.  I can see being a pain in the a** for the contractor to ask this, but I could be off base.  So, how do I get accurate rehab numbers? Thanks in advance!  -Nick

@Ernesto Hernandez @James Wise

Andrew Syrios · Answer

I think it's going to be really difficult to get a bid before even making an offer. In certain instances, it might be worth getting a contractor to take a look at it and give an approximate bid. Usually, you'll want to come up with an estimate yourself and get a bid once you've gotten the property under contract.

Alexander Felice · Answer

Get it under contract then get bids. If you get a bunch of bids for houses you don't even get a chance to close at you're going to waste of a lot of people's time and negatively impact your social capital.

This is why you have due diligence

James Wise · Answer

You're gonna have to pay the contractor to bid jobs for you. You can probably bring a contractor out once & not close the deal. From then on though the freebies are over.

Ernesto Hernandez · Answer

@Nick Wilson my advice would be that you get a line item bid prior to closing. You can get a property under contract with inspection contingencies from a realtor and then send in a GC or handyman to give you a bid.

Do not buy anything from a wholesaler without a bid or an inspection. They sometimes have great deals but there is little to no inspection contingencies with those guys.

Initially you'll likely pay about $100 or so per bid and ask to have that credited back if you follow through with the project but when you start, you'll have to earn your stripes. I know a GC who did 16 bids for a Realtor and was only picked up for 1 and they won't do it for new people anymore. Do some deals with them however and they may even float the cost of the project for you until completion.

I STRONGLY suggest you read J Scott's book primarily so you can speak the language. If you don't know the language, the numbers will be Chinese to you anyway and you won't know if they are fair or not.

Conversely, if you know you need about 10 feet of cabinets, 10 squares of roofing replaced, 20 linear feet of aluminum gutters and about 1150 square feet of vinyl plank flooring you can then call around for estimates and get a feel for what market rate is.

Always forecast higher on rehab and lower on your appraisal as banks are less generous with cash out refi estimates when compared to comps for actual sales.

If you want to do a TRUE BRRRR where you get ALL of your cash back you may want to set your criteria as 70% to ARV all in so you have some buffer.

In the end however, even if you BRRRR and leave a few grand in the deal, it's much better than 25% down.Find a lender ahead of time so they know what you want to do and get pre qualified so there are no surprises. Specifically, read brokeisachoice.com and click property #6. See if your bank can do delayed financing that way. They may be able to and not know it because nobody else has asked.

All of this took me many months and real experience to learn so please don't repeat my mistakes.

Good luck.

Joe White · Answer

@J Scott's Book on Estimating Rehab Costs should get you closer on your estimates. You can also put contingencies in the deal, so you can walk if need be. Like contingent on a Home Inspection, or even contingent on a next day contractor walk through.

Jeremy A. · Answer

Basic source i use for national comparison is

https://www.thumbtack.com/prices

.https://www.homeadvisor.com/r/true-cost-of-home-im...

https://www.fixr.com/costGuides.html

https://www.improvenet.com/r/costs-and-prices/remo...

Matthew Paul · Answer

@Nick Wilson If you have a check book , you have a contractor .   I will look at as many properties you want , but you will pay for each and every one . You will get a  rough estimate on the spot . For a detailed estimate , break out the checkbook again .

Nick Wilson · Answer

Thanks for the input everyone! Much appreciated!!!

Anthony Dooley · Answer

@Nick Wilson by waiting, you are giving someone else time to submit an offer. I suggest making your offer first, get it accepted, then get your contractor bids during the due diligence period. You may need to back out or renegotiate if the bids are much higher than your estimation.

Ernesto Hernandez · Answer

Crazy that @Alexander Felice responded while I typed to include him.

Should I get a contractor bid before I make an offer? - BRRRR

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