PRICE/SQFT REHABBING ESTIMATES in LOS ANGELES as of NOVEMBER 2022

[Andrew Oliveri]

I'm in Los Angeles and looking for triplex and fourplex properties for a house hack investment.

My question is about estimating rehab costs for the possible properties I have found.

Considering current inflation and materials shortage I'm looking for guidance in estimating various rehab scenarios.

Light cosmetic rehab

AND

Medium rehabbing - i.e. adding a bathroom or converting a garage to and ADU

Anyone have a PRICE/SQFT. guideline that they currently using to accurately estimate their rehabs??

Bear in mind that any rehabbing I undertake for this investment will be for renting the property and living in one of the units...So I will NOT be using custom, premium fixtures, etc...

[Will Barnard]

"Anyone have a PRICE/SQFT. guideline that they currently using to accurately estimate their rehabs??"

The problem with the above is that you can't "accurately" estimate rehab costs by using a price per SF. If you want accuracy, there are no shortcuts, you must make a SOW (scope of work) and price each line item out to be accurate allowing for a % for buffer at the end as hidden or unforeseen items are not only common, but probably, especially when the rehab is heavier vs lighter.

Lots of people suggest having 3 bids from contractors but when you don't own the property and are merely trying to put a budget together to make an offer, contractors are often not going to put forth all that time in effort on the off chance you do get the deal and do hire them, so you would have to pay for the bids. That would not be efficient at all and as such, knowing how to price out a rehab on your own is essential to your success as a real estate investor working with rehabs (for flips or holds). There are many, many threads here on BP on how to properly estimate rehab costs in which I and other pros have gone into great detail on how to perform this task. 

[Marshall Leipprandt]

@Andrew Oliveri I agree with @Will Barnard on this. Plus, an additional thing to keep in mind is that each property is going to be unique in terms of the shape that each unit is in. You may have some units in a multi that turn over every couple years allowing the landlord to have done some maintenance and repairs, whereas other units may have had a tenant living there for 15 years and the status of that unit is unknown.

The risk here is that even an estimated price/sq ft could be dramatically different even if each unit's layout is mirrored. 

In your case, I think the key is going to be finding a property that will be delivered completely vacant, If you're looking at a 3-4 unit, that could be quite difficult but your odds of complete vacancy upon closing obviously increases with a duplex. Since you're wanting to rehab to add value and increase the gross rents post-renovation, the success of your strategy will largely be contingent on where you buy in LA, whether or not the property is vacant or not at closing, how long the current tenants (if any) have been living there, what their current rent payments are, and the limitations you'll have as a new owner/landlord given the rights they are afforded as tenants.

[Kevin Sobilo]

Quote from @Will Barnard:

"Anyone have a PRICE/SQFT. guideline that they currently using to accurately estimate their rehabs??"

The problem with the above is that you can't "accurately" estimate rehab costs by using a price per SF. If you want accuracy, there are no shortcuts, you must make a SOW (scope of work) and price each line item out to be accurate allowing for a % for buffer at the end as hidden or unforeseen items are not only common, but probably, especially when the rehab is heavier vs lighter.

Lots of people suggest having 3 bids from contractors but when you don't own the property and are merely trying to put a budget together to make an offer, contractors are often not going to put forth all that time in effort on the off chance you do get the deal and do hire them, so you would have to pay for the bids. That would not be efficient at all and as such, knowing how to price out a rehab on your own is essential to your success as a real estate investor working with rehabs (for flips or holds). There are many, many threads here on BP on how to properly estimate rehab costs in which I and other pros have gone into great detail on how to perform this task. 

@Andrew Oliveri, I echo @Will Barnard, but I also add that I do something in addition to that.

I will do a scope of work but initially I might do it at a high level and then only after a deal looks good will I refine and work with it more.

In my scope of work for each line item, I assign a % confidence I have in my estimate. Then I use that to calculate a high and low estimate value. For example if a roof is $10k and I'm 90% confident in that number the high value is $11k (10% more) and the low value is 9k (10% less) based on that 90% confidence number.

When I add things up I have a low and high total estimate in addition to my middle estimate. If my high estimate is still "ok", I feel good about the deal because that is worst case and I know that with good project management I can bring it around the middle estimate the vast majority of the time.

This allows me to do estimates well enough without contractor bids early on when I'm trying to negotiate a deal. 

[Will Barnard]

Quote from @Kevin Sobilo:

Quote from @Will Barnard:

"Anyone have a PRICE/SQFT. guideline that they currently using to accurately estimate their rehabs??"

The problem with the above is that you can't "accurately" estimate rehab costs by using a price per SF. If you want accuracy, there are no shortcuts, you must make a SOW (scope of work) and price each line item out to be accurate allowing for a % for buffer at the end as hidden or unforeseen items are not only common, but probably, especially when the rehab is heavier vs lighter.

Lots of people suggest having 3 bids from contractors but when you don't own the property and are merely trying to put a budget together to make an offer, contractors are often not going to put forth all that time in effort on the off chance you do get the deal and do hire them, so you would have to pay for the bids. That would not be efficient at all and as such, knowing how to price out a rehab on your own is essential to your success as a real estate investor working with rehabs (for flips or holds). There are many, many threads here on BP on how to properly estimate rehab costs in which I and other pros have gone into great detail on how to perform this task. 

@Andrew Oliveri, I echo @Will Barnard, but I also add that I do something in addition to that.

I will do a scope of work but initially I might do it at a high level and then only after a deal looks good will I refine and work with it more.

In my scope of work for each line item, I assign a % confidence I have in my estimate. Then I use that to calculate a high and low estimate value. For example if a roof is $10k and I'm 90% confident in that number the high value is $11k (10% more) and the low value is 9k (10% less) based on that 90% confidence number.

When I add things up I have a low and high total estimate in addition to my middle estimate. If my high estimate is still "ok", I feel good about the deal because that is worst case and I know that with good project management I can bring it around the middle estimate the vast majority of the time.

This allows me to do estimates well enough without contractor bids early on when I'm trying to negotiate a deal. 

This is very sound advice and a great idea especially for newer flippers as you developed a cushion in the event you go over budget. It is similar to simply adding a 10% across the board “contingency expense”. That said, attempting to do that during the very competitive sellers markets we had would put your offer too low making your offer success rate very low so you must also keep the market conditions in mind. During market up tick cycles, your buffer ends up being the appreciation while you hold it. In a downturn market, you absolutely need buffers, perhaps greater than 10% as you need to allow for rehab buffer and market depreciation buffer as well.

[Kevin Sobilo]

@Will Barnard, thanks! Yes, it is a way for accounting for the fact that I don't have contractor estimates. Some items I can closely estimate within 5% and some items I may not feel so confident about where I might allow for a 20% buffer.

However, in the end, I'm working and project managing towards my un-buffered estimate because with project management working the time, scope, financing etc one can often bring a project in near the un-buffered estimate. The buffer (% confidence) is more of a vetting tool to let me know that even if everything goes badly that the deal will still be ok.

I do add in a Misc catch-all to account for all the unaccounted for costs as well. So, even the un-buffered estimate accounts for all the small stuff etc.

The project management aspect is one area where I think people should focus more. If they understand basic project management principles they will vet deals better and be better able to bring them to fruition from start to finish.