How do I properly estimate rehab costs?

[Henry Polanco]

Hi all,

I'm looking into getting into flips in Philly. My biggest hurdle is estimating rehab costs.

What information should I use to get a close estimate for my materials and labor?

I read that using  x dollars per square foot is a good metric depending on how much work the property needed but the numbers were outdated.

How much time should I add due to supply chain issues?

I really only want to do lipstick rehabs until I get comfortable. From what I understand, 3 months was usually a good timeline for that kind of project; is that still true? I just want to have a realistic idea of what my holding and money costs will look like. 

I want to be conservative in analyzing my deals and calculating my max offers but I feel like without this information, I'm going to get in a lot of trouble.

Any insight at all will be greatly appreciated.

[Will Barnard]

This is the most common question on BP - how to estimate rehab costs. It has been asked thousands of times here and there are many threads on it with many responses. Do a search and find them.

Here is advice I have given numerous times:

If you want to go about your real estate business using some arbitrary price per Sf for rehab calculations, be my guest, but good luck being accurate that way.

Let’s say you have two identical homes on the same street, both 3 beds, 2 baths and 1500 sf single story, model matches. One home (Home A) needs a new roof, new electrical panel, new water heater, foundation repairs, plus the remodel upgrades of new kitchen, baths, flooring, new windows, paint, landscape. The second home needs just the remodel upgrades. If you used the arbitrary price per Sf calculation, you would be way, way off on home A compared to the later.

The ONLY way to estimate rehab costs correctly and accurately is to build your SOW (scope of work) and then use your itemized spreadsheet to input each line item needed with each respective cost. Even if you go the route of employing 1-3 contractors to bid it, you still need to provide them a SOW. Knowing what each line item will cost takes time and effort too. You need to research material costs and then labor costs for each line item. Once you have those, you can plug them in to your spreadsheet, then plug in the SOW line items and bam, you have your final number. Once you do this enough, you will learn to break up the home into sections (kitchen, bath, flooring, paint, windows, doors, landscape, roof, HVAC, electrical, plumbing, etc.) and you will know your average cost per section (or per sf in the case of flooring, tile, etc.) (and per linear foot for trims). Then you simply walk through each potential purchase and add up the sections in your head and walk out with a number that will be very close. Lock it in closer using your spreadsheet.

As to supply chain issues, you certainly want to order all your product well in advance, particularly garage doors, appliances, and cabinetry.