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Updated over 9 years ago, 04/01/2015
Fixed Costs?
As I am still a novice in real estate investing, I was wondering if anyone could explain what exactly composes "fixed costs" and if there is a formula out there for calculating it. (Maybe not the exact amount but just a number that could give you a general idea, preferably for single family residential).
Tough question. Depends on house size, location, 2 versus 1 story, etc.
The only fixed I could offer is closing costs (real estate agent fees) which is usually 6% of the ARV or sale price.
Anything else would be ballpark numbers like roof, foundation, kitchen/bath gut/remodel, paint interior/exterior, etc.
Roof: $7K - $12K (But depends on the type of roof and if plywood needs replacing or if there are more than 1 layers of roofing that have to be removed.
Foundation: $1K - $8K
Kitchen (total gut): $8K - $15K for average 10x10
Bath (total gut): $3K - $15K depending on whether 3 piece, 4 piece or master bath
Interior Paint (whole house including baseboards/trim): $1.25 - $1.75 per sq.ft.
Exterior Paint (whole house): $2.00 - $2.50 per sq.ft.
Note on painting: It's based on sq.ft. of house and 8 foot walls. More if walls are 10 - 12 feet tall.
Plumbing/Electrical I've seen all over the place with numbers for the same job so can't quantify that at all. We did a new bathroom which required concrete work to get to drain and build the bathroom. Cost estimates on plumbing alone were $7500, $6800, $5000.
Gave a great overview for construction costs. I would just add additionally you need to remember the carrying cost are.
Purchasing the property you:
Title Insurance, Govt recording charges, attorney fees(900-1200), financing fees(depending on how you are purchasing if using hard money this could be 4 pts total loan and 14% for a year loan) Builders risk insurance(have to protect you and your investor), Here in NJ i will always get an oil tank scan (150-250). If there is a well or septic on the property you need to get that tested before you purchase the property for the CO in some towns.
Selling the property:
Real estate commission was mentioned, your attorney fee again, real estate transfer tax, home inspection issues(usually budget a few thousand for that)
Daily Carrying costs
Monthly Mortgage payment(if you used somebody else money), temporary utilities(with the winter we be going through gas and electric have spiked to couple hundred $ a month) water and sewer, property taxes.
I use a professional to stage all my properties selling retail. (1500-2000)
Just some things to consider to budget for when crunching your numbers.
I am sure I am missing some.
Best of luck.
Fixed costs generally refer to overhead that is static between jobs and doesn't change, or at least can't be removed. This is hard to use in real estate since everything is pretty much variable when you're talking deal-to-deal since everything is a variable cost based on the house.
However, most people on BP refer to fixed costs as non-remodel costs. This would be holding costs, insurance, utilities, closing costs, etc. While all remodel costs would be considered variable cost.
@Rodney Marcantel is correct in that pretty much the only true fixed cost you will experience is closing costs since it's (generally) a set 6%
Thanks Rodney! I concur with a lot of those rehab costs as they are in the same ballpark as what it costed me to do my personal home. I guess it really does depend on the area/size of house you are going for, I just didn't know if maybe there was some kind of formula or general "rule of thumb" that I might be able to use to get a good idea. I guess it's best to stick to one area right now and really get it down before I broaden my search. Thanks for the insight!
Hey Dave, thanks again for the feedback!
It's funny that you mention the oil tank inspection because I was actually just talking with my attorney (who invests himself) and he swears by those inspection. Never does a deal without it, especially in this part of New Jersey. And I was actually just starting to look into how to go about staging. Does it really make that much of an impact?
Thanks for the feedback Alex. The realtor commission fees can be negotiated though right?
I was surprised myself. But when the house is empty retail buyers will look at every imperfection in the house. They do not have the vision for what could be there. the staging I have seen help them feel like this could be there home. They have a place to sit in the living room or a chair at the breakfast bar.
You know, now that you mention it that does make a lot of sense. I never thought about it that way. That's a really good point.
You will be offered a ton of advice and suggestions here on BP. I would strongly suggest acquiring knowledge from a vast array of sources (also I suggest researching in full the resources and the potential agendas there of) . Some hold weight in my opinion more than others.
The "costs breakdown" Jay... provided through his link is a good place start in my opinion but remember there are many variables. You will find in places like Toms River with many different subdivisions/sections of town and the diversities within can greatly affect costs and rewards in all the categories as mentioned from one street to the next. Since you are renovating your own home (not sure if it is to rent or flip) pay very close to your neighborhood. I have seen a ton of rehabbers over do it and really over spend on projects and under do it and do shoddy rehabs and pay for it in longer holding costs or lawsuits. Developing relationships will help control all your costs from acquisition, rehab and disposal/renting. Watch your ROI.
Been there, experienced it......Yes in Toms River... North Dover, Gilford Park, Holly Oaks, Dover Walk, Holiday City, Silverton, Kettle Creek and more.
Originally posted by :
The "costs breakdown" Jay... provided through his link is a good place start in my opinion but remember there are many variables.
I thought it was clear -- but perhaps not -- the article I wrote/posted above is a "methodology" for determining your fixed costs. The numbers I included are for MY fixed costs, and aren't meant to be used for YOUR fixed costs.
Every person, place and project will have their own set of fixed costs and they may be very different than what I listed in this article. I rehab in three states, and the fixed costs can vary among similar projects by up to 100% depending on the state, the local jurisdiction and how I'm financing the project.
The numbers I included in that article were for example purposes only -- figure out your own set of costs and the proper allocations based on your specific situation.
The fixed costs are whatever you pay for the materials you want to put in and the price you pay someone to put them in. If you do it yourself, the fixed costs are the costs of the materials.
I typically will buy the laminate flooring when it goes on sale for 0.29/sqft, the $54 pedestal sink or the $40 vanity sink from Lowes. Home Depot has cheaper trim online than it does in stores by a factor of maybe 2 for the same trim. Unfinished cabinets and laminate countertops are pretty cheap and are easy to install.
Many times, contractors will throw numbers out there and will charge you whatever sticks or whatever they think the market will bear. I wouldn't call estimates like these fixed costs. Of course, some of the high end finishes etc have high fixed costs unless you want to ship these high end finishes yourself from China by the 75lb box or shipping container. Sometimes you can get lucky on Ebay, Amazon, or the Habitat ReStore for the higher end finishes and sometimes you will still have to wait several months for these things to be shipped from China.
Originally posted by @Jassem A.:
The fixed costs are whatever you pay for the materials you want to put in and the price you pay someone to put them in. If you do it yourself, the fixed costs are the costs of the materials.
Most investors will refer to that stuff at the "rehab costs."
Fixed costs are the other -- non-purchase price and non-rehab -- costs associated with the project. For example, Purchase Costs (inspections, loan costs, appraisals, closing costs, etc), holding costs (taxes, insurance, utilities, lawn care, etc) and Selling Costs (commissions, closing costs, concessions, etc).