Complete Rehab from studs

[Michele G.]

Where do I start to determine if this deal is worth it? 

We have a potential property that would be a complete rehab. It has been empty for 3 years, was bank owned. Private party purchased it last year, gutted it, & is now selling for $5k less than he paid. It is mostly gutted down to the studs and subfloor.  1600sf in a good town with great schools. 

At first glance, it needs:

Exterior: Roof, Siding, Gutters, Doors incl Garage door, Garage wall repair (there is a hole in the wall), Driveway (gravel & asphalt are common in the neighborhood)

Interior: Drywall, Flooring, Cabinets, fixtures 

250,000 ARV/Selling Price

- 25,000 Profit

- 110,000 Rehab costs (complete guess)

-    4,000 Purchasing costs (inspections, etc)

-    7,500 Holding costs (based on 6 month rehab)

-  15,000 Selling costs

-  15,000 Contingency costs 

    73,500 Maximum Offer

I think the $250k sales price is low. A similar house in the same neighborhood sold 6 months ago for 310k. Same square footage, but no garage. It had also been gutted down to studs and fully rebuilt.  

We are going to get inside to look at it further with our realtor and inspector.  Is there a good way to get a more realistic rehab estimate so we can determine if our offer price is sound?  Am I missing anything that I should be thinking about or concerned about? 

[Kuba F.]

Hi @Michele G.

Here's a BP blog post I recently published on how to estimate some common rehab costs:

https://www.biggerpockets.com/blogs/8814/72452-how...

When I walk through a property, I use this punchlist to ensure that most of the items are accounted for:

https://www.biggerpockets.com/files/user/kubaf/fil...

When you're walking through the property make sure that you record the whole thing top to bottom on your camera phone so that you can re-watch it over and over again while you come up with a scope of work.

As to your deal numbers, I like that you have a large contingency if this is your first flip.  You don't know what you don't know and that usually results in extra costs.

Generally you should stay away from gut rehabs on your first try as they will cost way more than normal due to poor planning, risk mitigation, and extended timelines.

Your selling costs are indeed low.