How to determine repair/reno costs before making an offer?

Question

Hi guys,

How do you determine how much a reno is going to cost?  I don't have enough experience yet to estimate costs myself and I'm new to the area and don't have an established relationship with any contractors.  I've found myself in kind of a catch-22 because contractors don't want to come and give me a general estimate until I'm at least under contract, but whether I make an offer is contingent on ensuring that the reno costs will make it a viable purchase?   Any suggestions would be really appreciated, thanks!

J Scott · Answer

NOOOOOO!!!!  :-)

Picking an arbitrary number like this is just going to create more problems than it will solve.  How can you say $20/sf without knowing

- Location

- Type of House

- Scope of Rehab

- Type of Contractor

- Level of Finish

And about a hundred other variables that will contribute to the cost of a particular renovation.

For example, if the OP is talking about a gut rehab of an upscale 3000 sf house in California, the $20/sf estimate could be off by $250K or more!

Jody Michelson · Answer

Hi Laura,

In addition to the good suggestions above, almost the single best investment you can make is to purchase J. Scott's companion books (published by BP), 'The Book on Flipping Houses' and 'The Book on Estimating Rehab Costs.'

You'll learn SO much from these books about creating a scope of work (which is a first step in determining how much rehab will be), valuing property (in case you're not familiar with basic comp analysis), determining how much you should pay for a property, and tons more.

Good luck!

Scott E. · Answer

Hi Laura

You won't start getting a feel for renovation costs in your area without experience. You can make offers an when one gets accepted, get a contractor out there ASAP. If the bid is outside of your budget, on to the next one. Once you get just a few bids from your contractor, you will start to understand what different renovations generally cost. SAVE those bids that you get, and refer back to them when you are trying to estimate your own rehab costs. You'll start to pick up the most common costs - $XX.XX / Sq Ft for flooring $X,XXX to renovate the kitchen, $X,XXX to renovation 1 bathroom, $X,XXX for baseboards throughout, $X,XXX for a new roof, etc. From there it will be much easier to estimate your rehab costs without a contractor and land within +/- 10%.

Another angle is to go to Lowes or Home Depot with the thought "I'm going to rehab MY house." Bring everything that there is to know about your house, pick out the finishes that you like, ask a lot of questions, and get a quote on the project. This method takes time but it's another option for getting a bit of experience with what different things costs in your area.

Justin S. · Answer

Hi @Laura Levine

I would start with a rehab analysis sheet like this one:

http://www.biggerpockets.com/files/user/JasonScott/file/13-rehab-analysis-spreadsheet---basic

If you need more guidance I would track down a local flipper in your area and see how they do it.

Good luck!

Kevin Brown · Answer

If you really have no way of getting a professional estimate, id say guesstimate $20/ft and go from there.

Bill Gulley · Answer

Go with J. Scott's advice.

I learned construction as a kid, so I'll skip that. I also learned simply by spending time with suppliers, a lumber yard is like a candy store to a kid with me and my dad. We'd just walk around and look, check prices and understand what was readily available off the shelf. This works for moderately priced homes.

It's always, "know your market". Go with what is appropriate for the market as to materials and appliances.

There were only a few projects that I got a contractor in to really give me a bid, usually I'm telling them my range to pay for a job with a material list provided. I estimate ten bucks a man hour and 10 to 15%, that's usually a starting point, but that's in my area. Some guys work at 12 bucks, some at 8 for labor. A decent finish guy is about 20 bucks. Prices increase for smaller projects requiring less time, you may have a two hour job and pay 100/150 buck to get it done too. So, it's just from understanding your labor rates and time required as well as the difficulty of the job. As the value of the home goes up, get better craftsmen involved, quality counts. :)

Laura Levine · Answer

Thank you @Jody, I'm on Amazon looking for the books right now!  @JScott that makes more sense, I know if definitely depends on your market.  I was reading some posts where people were buying buildings with 4 apartments for $100K...you can't even get half a studio apartment for that where I am!

George P. · Answer

when i started, i often time had the code to the houses. so i'd call a contractor and act like i already purchased it. i'd tell them that the sign is still there cause i JUST closed on it. they had no idea i didn't own it.

Laura Levine · Answer

Thanks so much @Scott Swink  @JustinS, and @KevinBrown!  So, maybe I'm getting the timeline wrong.  Should I be making an offer first and then getting contractors out there?

Scott -That's a great idea about keeping the bids and learning from it that way.  I'm happy to go to Home Depot and spend the time talking to people, but I was just concerned about some of things that you have to be hands on to estimate (ie a bump out, the basement redo, ect).  Thanks again!

How to determine repair/reno costs before making an offer?

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