What is the best way to evaluate repairs needed?

Question

I have no rehab/construction experience.  I dont know what jobs cost what.  Im pretty much a newbie!

I think I've come up to what I think may be a good opportunity for a rehab flip.  What is the best way for someone in my situation to evaluate what repairs are needed and how much they would cost (ballpark), before I decide to buy this house?

Home inspectors dont do this sort of work, do they?  Do I hire a GC to do it?   My biggest fear is getting in over my head from underestimating repairs and LOSING money.  And the sh*t I would catch from my wife for doing so.

Thanks.

J Scott · Answer

Prices will change from contractor to contractor, but keep in mind that after doing a couple flips, you'll start working with the same contractors time and again, and you'll become very familiar with their prices.  For example, I can ballpark rehab costs to within about 5% in about 15 minutes these days, because I know what to look for when doing inspections and because I'm so familiar with my contractors and what they charge.

Now, that doesn't help you on your first couple, and I was in your exact spot about 2 years ago (barely knew how to change a light bulb).

What I did was to find a good GC who was accustomed to working with investors, and offered to pay him to visit a couple REOs that I was planning to put an offer on.  He came out, helped me put together a list of repairs that were needed, and then put together an estimate for doing those repairs.

After spending about $150 for his help, and looking at a few potential rehabs, I started to get an idea of what I was looking for with my inspection and a very ballpark estimate on what it cost.

Btw, I used that GC on my first flip, and knew exactly how much it would cost, because he had already given me an estimate.

Ask other investors you know if they have recommendations for a good GC, and then take the GC to lunch and start trying to build a relationship.

And like I said, it will get MUCH easier...so stick with it!

J Scott · Answer

Yup...

I used a GC on my first two rehabs, and then started bring in sub-contractors and managing them myself.  By my fourth rehab, I had hired a full time project manager whose job is to hire, manage and deal with the day-to-day issues of the contractors.

To start, you want to have a good:

- Plumber
- Electrician
- HVAC Guy
- Painter (who can also do siding, drywall, etc)
- Carpenter

You'll also need a roofer, flooring guy(s), cabinet guy, etc, but you can go with the bigger companies for that stuff until you meet the right people.

In my opinion, the most important guy on your contractor team is probably your handyman or generalist.  He can probably do much of the finish electrical, finish plumbing, basic HVAC, basic carpentry, etc, for about a quarter the price of the specialists.

For example, a plumber will probably charge $60-70 to install a toilet...a good handyman will do it for $20-25.

That said, make sure the specialists are licensed, and make sure you keep your unlicensed handyman away from anything that requires a specialty permit.

Brian Levredge · Answer

For your first couple of flips, I would highly recommend staying away from anything that requires structural work and refrain from removing walls and redesigning floor plans.  Stick to cosmetics.  Most GC's estimate using per sq ft numbers.  For example, interior paint runs X per sq ft.  based on the Sq footage of the house.  Cabinets are priced by linear foot.  Tile and granite are priced by sq ft and so is flooring (carpet is done by the sq yard).  About the only things that aren't priced by the foot are doors, windows, appliances, and fixtures (these you can get an idea on by looking online at Home Depot or Lowe's.

To get an idea of this, you could pay three different GC's to come out to your own house and give you prices on to replace/repair virtually all your interiors.  This will give you a range to work with.  You could also have tradesman give you prices for various items to see what the markups are.  The AIA also puts out a book every year that gives a price breakdown of every single aspect of construction.  The book is published regionally and can be a good baseline tool to work with.  Don't rely on it exclusively though.

Never settle for a bid from anyone that is a lump sum price.  That's a joke.  Insist on a penalty clause in the contract for delays that are within the contractors control (ie: not showing up).    Lastly, and I think this is pretty important:  try to develop a good relationship with your GC if possible.  The adversarial relationship won't work for either of you.

Des Shei · Answer

i said it in a previous post of mine and i'll mention it here as well. Educate yourself on the basics of construction. GCs are very clever people, if they get any clue as to your lack of knowledge; you can rest assured they will exploit that weakness. Once you educate yourself and test out a competent GC on your first rehab or two; you can take on being your own GC to the subs thereby further increasing your relationship and knowledge of the process. There are great educational readings and videos online to help you as well. I cannot stress how much it is to be armed with some knowledge when you meet contractors; for in as much as you are evaluating them, they are also evaluating you and your familiarity with construction terms. Hope that helps.

Gregory Childs · Answer

Their is a difference between what "needs" to be done and what you want to have done.

As you don't have experience yet, why don't you hire a home inspector to run through the property - the inspection report will tell you what "needs" to be done to sell the home.

That becomes the basis for your discussion with the GC. i.e let's say the inspector tells you the cabinets around the kitchen sink show sign of water damage/rot and they need to be repaired - then you can discuss with your GC the costs to repair what is in place vs. replacing the kitchen cabinets with a newer more marketable kitchen. Would the increase in sales price (or speed in turning the property) with new kitchen cabinets justify the cost differential.

Effectively, you are using the report as a base line - it helps you appear more informed to the GC and also stops him taking advantage (especaially if you don't have an established relationship). As J Scott mentions, you will get the feel for it pretty quickly, this just helps you get a head start.

Warren Buffett agree's with your wife "Rule #1 Don't lose money."

TTFN,

Greg

Ben Thompson · Answer

You want to get bids from several contractors for each type of job (handyman, electrical, plumbing etc). After you have done a few houses, you will get a feel for what something really cost and there is no need to go get that many bids.

Will Barnard · Answer

There is no substitute for hands on experience and as such, I highly recommend you get with a few other rehab investors and go to their porjects and ask questions. Some investors in your area may be willing to help you in your education.

In the past, I instructed my students to spend plenty of time at Home Depot and Lowes to calculate specific costs of specific and common rehab repairs such as carpet, paint, doors, moldings, kitchen appliances, bathroom vanities, faucets, etc. Knowing the material costs and some of the install costs will help you evaluate and learn the costs of rehab projects.

Jeff B. · Answer

I agree with using a GC on your first couple of flips and remember to add 10 - 15 % to the estimate for unforeseen things that will pop up.  Since you are starting out I would also make sure that the rehab is Not to extensive.  If the rehab estimates are around $5 a sq ft then it will be a good rehab to start with.

Also understand that once you start rehabbing the place you will have the urge to want to update other areas which will blow your budget.  Make sure when the GC is giving the estimate that you take your time when inspecting the major items (roof, foundation, HVAC, electrical, plumbing) and look for signs of termites.

The last thing is to educate yourself on the basics of carpentry, plumbing, tile installation, and drywall.  You can check Amazon for highly rated books on these subjects and check the local library to see if they are available.  Some GC's will cut corners if they can get away with it and by just talking some of their lingo and knowing how things should be done will avoid potential costly problems down the road.

Jaime Vasquez · Answer

Do you have any investor friends that could walk you thru the deal?  Maybe offer them a cut of the profits if they can guide you thru the whole rehab.  An inspection is a must, after a few deals, you will see why.  More than likely you will go over budget, its normal, a inspector and investor-friend will greatly reduce the potential budget overages.  
            
            Getting burned by contractors is much more probable, but thats another topic.  A simple suggestion to prevent getting burned by the subs/gc/workers is not give a deposit on labor and do purchase materials yourself.  If a contractor needs money up front, i dont work with them.  all subs get paid upon completion.  GC (contractor or crew) get paid 25% and 50% when they complete 25% and 50% of work, the final 50% is paid upon completion.

Account Closed · Answer

It has been said several times but working with a GC is not a bad idea the first couple of times out. Here is what I have found:

There are three general types of cost estimates, each with corresponding degree of accuracy:

1. The â€œguessâ€ method:  (i.e. â€œAll bathrooms cost $5,000.â€)

2. The â€œsquare footageâ€ method:  (i.e. â€œRemodeling costs are $60 a square foot, the job is 500SF, so the price is $30,000.â€)

3. The â€œunit-basedâ€ method:  (i.e. â€œTo replace a toilet the bowl costs $45 and the tank costs $50.  The installation of the tank and bowl will take a plumber 1 hour at a rate of $32/hr.  Therefore, the cost of material and labor for adding a toilet would be $127.â€ )

The guess(timation) and square footage methods are the most widely-used methods of estimation.  They are fast and require less skill.  Unfortunately, they are also the least accurate.

When used, these methods introduce too many variables in the areas of material, labor, and timing into your projects and deals.  That costs you and your customers a lot of money.

But letâ€™s not discount the guesstimation and square footage methods altogether.  If you do use these types of estimates, use them for qualifying a deal but never for bidding or negotiating a price.

Unit-based estimation on the other hand, is the least used and most accurate method.  So if accuracy matters, then why is it that unit-based estimates are not the standard?

Up until now, producing an estimate that itemizes material costs (unit by unit), labor costs (demolition, removal, and installation) and project timing costs (donâ€™t forget those holding costs); was extremely time-consuming, required expert knowledge, and was very costly.

Regardless of time, knowledge and cost; the results of the unit-based method are a very satisfactory tool for determining economic decisions based on price and generate accountability due to the supporting information available for review.

Put in the simplest of terms, if you are doing deals; please use the unit-based method.

Let me know if your interested in learning more about the unit-based method. I have some cool stuff that makes it so simple and cheap it will blow your mind, but I have rambled on enough already.

Best of luck to all!

What is the best way to evaluate repairs needed?

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