How to project rehab cost

Question

Hello everyone, so the first couple of rentals I have have been basically turnkey properties, we’ve done some painting, changed out fixtures and appliances and minor repairs but I’m looking to get more equity up front which means buying a house the doesn’t look great. I have zero experience with construction or rehab cost so my question is is there a resource I could use to help me project rehab cost. I’m looking at a property now that is a mix of wood paneling, horrible wall papers and shag carpeting aside from a kitchen that needs a makeover. I use the rental calculators but want to be realistic instead of speculative.

Tim Mcbee · Answer

@Matthew Otero

@Greg Dickerson

I think Greg is spot on. If you hire an inspector who may also be a contractor he can give you budget pricing to act as a guide and also recommend a good contractor. Just know that most states do not allow the inspector to perform work on a home they inspected for at least a year.

Greg Dickerson · Answer

I have never used those sites as they are paid services by the contractors so they don’t really screen the service providers but you can read reviews and talk to references.

That being said some of the best ways to find contractors is to talk to architects, designers, engineers, realtors, other investors, Facebook groups, supply houses and other contractors.

Also check MLS for flip properties and new construction specs for sale.

Make sure to get references of 3 or more current clients with work in process, 3 or more recent past clients, and visit some active job sites to see how they look. You can tell a lot about a contractor by how clean and organized the site is and the quality of the subs as well. You also want to talk to the subs to make sure they always get paid on time and ask what they think of the builder.

Make sure to check license status and for complaints with the state board and get proof of insurance sent to you directly from their insurance company with you as named insured.

You are the leader so it’s your job to give everyone what they need to be successful. The leader sets the pace of the pack.

When it comes to managing contractors you need to understand they are a vital part of the team. You need to be easy to work with, be respectful, establish a clearly defined detailed scope of work, lay out clear expectations of what you want done and when and hold them accountable to the goals. This is how you set the contractor up for success which helps them be more profitable and avoid issues.

This approach will put you on the top of their list.

After several projects you should be able to build a database of costs so you can set and control the budget. You tell the contractor what you are willing to pay. Be fair and reasonable.

You need stay ahead of them on the cashflow. Do not pay in advance for work not complete. A good contractor will not need a deposit to get going if you pay them upon completion of each phase.

Matthew Otero · Answer

@Greg Dickerson

First of all, thank you for the response and the information. Secondly, is there a certain site or forum you use when looking for subs and pricing, like an Angie’s list type of tool? I’m weary due to a lot of bad contracting stories as my lack of experience it’s the reason I’ve stayed away from such properties. I really like the cost basis idea which will be pretty accurate in my case since my investments are in the same market. Thanks for help!

Greg Dickerson · Answer

Matthew - You want to walk through the house and make a detailed list of everything that needs to be done so you can create detailed line item pricing.

If you are unsure of what you’re looking at you can hire a home inspector and go through the house with him or her and learn what to look out for.

Once you have your list you can get pricing turn key from subs and vendors but they will need a very detailed scope of work with all your selections etc. Take this info and build yourself a costs data base so you will have it moving forward.

You can also get standardized pricing from all the trades for various items like roofing, siding, painting, kitchens, flooring, etc. Always get turn key pricing including materials and the suds supply materials. This will save you time and money especially with any warranty issues after the sale.

If you need to calculate labor for a task you need to know what the going rates are for the trades and break the task down by the amount of hours it will take. If you don’t know ask the subs to help you with this so you can formulate the budget but never hire sounds or labor the hour only by the job. You can determine a cost for any task when you approach it this way.

Main thing is to document all your costs for every project so you can build your cost data base for future projects.