Am I doing something wrong?

Question

Hello, after reading many posts and doing research I've come to realize many people are spending around 20-25k on rehabs.  The problem is, I'm spending anywhere from 35k-50k.  Am I going overboard on the rehabs?  Our properties sell quick and we make a good profit, but it seems as though people are spending only 20-25k?  Our material costs is around 20-25k and labor is 9k-12k for carpentry only.  We put in new granite counters, appliances etc etc.  Please let me know.  Thank you.

Ann Bellamy · Answer

Greg, Paul Morgan is correct, your location matters. If you post your location in your profile and allow others to see it, someone in your area might be better able to help.

Also, I have borrowers doing everything from full gut rehabs on older properties that run up to 100K or more, to fluff and buffs of only 15K.  So there is not one set of figures that fits all

Brian Burke · Answer

Rehab costs vary widely by area and property condition.  If you buy a newer house that only needs paint and carpet and you spend $50K, you need to check yourself into rehabbers rehab.  You have a problem!

If, on the other hand, you have a 30 year old home that has been abused and neglected, has original avocado and yellow decor, a chopped up floor plan, outdated mechanical systems, etc, get out your checkbook and prepare for big numbers.

Is it possible that some rehabbers can do the same work you are doing for less?  Perhaps.  Look for ways to make your dollar stretch further.  However, you might be right in line with other folks in your area. Just dig, dig, dig into your spending until you hit rock bottom pricing.  Doing a lot of flip volume helps, too.

If you have stretched your dollar and you still think you are spending too much, try a lighter rehab on your next couple of projects and see how you make out.  Remember that you rehab for profit, if you spend an extra $10K, you want to sell for an extra $20K.  Test it out and your bookkeeper will answer your question after all of the numbers are in.

Mark H. · Answer

I think there's often "more to the story" on the rehabs you read about here, not necessarily posters being untruthful, just tips, tricks and "styles" of rehabs.  My forte is buying materials at insane pricing, but I don't have the time or energy to actually install many of those materials, so after doing a few rehabs, I've found people I can trust to do a great job at a great price.  My price for labor is probably lower than if someone new called these guys, and probably on another level entirely from the big guys who can keep a crew busy for weeks at a time.

I don't think there's any "shortcut" to figuring the business out, you will end up paying for things twice, or paying extra for what "should have" been included in your quote, until you learn by doing.

That said, I've gotten and given referrals for my rock-star contractors, I want them to stay in business, and to remember me when I call them for help, so just asking other landlords and rehabbers for referrals works pretty well, as does asking for help in finding sources for materials for the same reason - the niche suppliers like the molding store I buy from don't make much money off me, and they're about a third the cost of the depot, so I pass their numbers out at every opportunity to keep them alive.

Paul M. · Answer

In my area just a new boiler is 8k.  Someone doing a gut renovation is obviously going to spend many multiples of 25k.   People talking about spending that little are either doing partial renovations because that is all that is needed or they are in lower cost areas.

Levi Gale · Answer

My two flips had huge differences in rehab costs.  One was around 10k, and the other was around 45,000ish.  I guess if you were putting 45k into a 10k rehab you may be doing something wrong.  But you said your profits are good so I'm going to assume you're doing something right.  My next rehab pending bank approval should be under 10k.

That sums it all up.

Kyle J. · Answer

I see rehab costs all over the board.  My last one (3 bdrm, 1 bath, 2 car SF house) ran me about 16k for everything (i.e. new flooring, drywall repair, scraping popcorn ceilings off and re-texturing, new ceiling fan, new fridge, landscaping, all new interior & exterior paint, some new electrical, foundation repair, termite treatment, complete gut & remodel of bathroom, two new doors and all new door hardware through the house, new water heater, etc etc etc).

That amount even included a few new tools (i.e. new table saw, hammer drill, etc) I needed to do the work.

Keep in mind though, I did a lot of the work myself.

Kerry M. · Answer

Greg P,
I was wondering the same thing.  Am posting to get help.  We either signed up for way more renovations than we thought or....  Our total is 60K so far and the first unit is not rentable yet, although getting close and .  
Need to start my own thread because our building is 95 years old, was in very bad condition, now has new wiring, new plumbing, very old lath and plaster walls, water issues (no more,) insured, 4 units....
The purchase price was low and I was told by professionals who knew my property that it would cash flow.  But that was before my repair budget became 60K instead of 45K and still short 10K to being done at least.
A similar building like ours is on the market for 133K, with one less unit, location closer to campus, finished (obviously.)  We're in 101K so far.
Dying...help
Kerry

Am I doing something wrong?

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