How to Sift through Properties for Rehabbing without seeing them?

Question

Location(s): Milwaukee, WI. Wauwatosa, WI. West Allis, WI.

Target strategy: House Hacking into BRRRR

I want to buy multifamily units that have the potential for forced appreciation, in solid neighborhoods. (B+ to C+ areas)

Secondary strategy: House Hacking into Flip (selling a turnkey rental property, after 1 year living requirement is met)

While I am not completely ready to invest (I am a full time student in my final semester), I am sharpening the toolbox so to speak by actively analyzing deals in my area (Milwaukee). The biggest roadblock for me personally, is trying to evaluate properties and their potential rehab costs.

Calculating an ARV seems to be an easier task, because I can evaluate the sale prices of similar properties in the area, with respect to size, quality and location.

However, estimating rehab costs is difficult. I wonder how others decide whether they should spend any more time analyzing a property without ever going to the property and getting an accurate estimate of the rehab costs?

Or is it that you really have to come up with a rough estimate, see the property yourself, come up with a new estimate and potentially waste your time doing so, seeing that this property cannot make the numbers work? Are there some strategies here that I am missing in filtering through potential properties?

Any thoughts, comments, suggestions are greatly appreciated!

Will Barnard · Answer

Bingo. Practice, practice, practice. Divide the home (or multi) into sections (kitchen, bath, flooring, windows, doors, stucco, paint, landscape, etc.). Go to as many open houses as possible to see potential rehabs and practice on them. Have a spreadsheet and take notes of repair items, Then go back and add them up. You will need to know labor and material costs for line items. Once you know average prices for sections (like $10k for kitchen, $8k for full gut bath, etc) you simply go and add up the sections and walk out with a rehab estimate. It takes time and lots of practice, there are NO shortcuts to this process.

Andy Sabisch · Answer

Rehabbing costs can make or break a deal no matter if it is around the corner or across the country.  Being able to come up with an accurate rehab estimate (and accurate means assuming the worse and then adding a contingency on top to account for what always shows up unexpectedly) is not something that should be taken lightly.  A suggestion is to try and connect with a rehabber in your local area and ask if you can go with them when they do a walk down of a property and see what they are looking for and what they are estimating the costs to be.  That will give you a quick lesson or two that will be invaluable when you do one for yourself.  Offer to take them to lunch - again, a cheap cost for a lesson that can save you a fortune in the long run especially if you are trying to buy a property long distance.  You will need to get a ballpark number yourself rather than expecting to get a contractor to look at every one and give you a quote - they are running a business and the willingness to do that without getting a job will run out after a few estimates are provided.  Some of the flipping gurus say that you need to get a GC to quote you work but if you are not buying multiple properties each year and using them, that is not fair to the GC and will not continue for long.

As far as estimates, you also need to determine how much you can (or want to) do yourself and how much you will need to contract out.  You might give some contractors a call and ask a general questions such as "What is the average cost to replace a two story house roof in XXX area?" or "If I have to replace a heating unit, what is the average cost for that work?"  Run through Lowe's or Home Depot and see what items like cabinets, fixtures, lighting and the like run . . . keep a notebook and jot these down.  Then when you get a video walk through of the property, see which items need to be replaced and you will have a list of costs in the area.  If you are able and willing to do some of the work yourself, you can save a good deal that will help you control prices but remember, the trade-off is that the project will take longer and increase holding costs or renovation costs.

Finally, be willing to use us on BP as a resource.  Post a link to photos  of the property and we can give you some ballpark ideas on costs and things that look like red flags.

Hope this helps . . .

Dave Schmidt · Answer

@Tyler Haanen Looking at deals over and over will get you to the point where you can confidently throw together a rehab budget on a napkin. Now don't get me wrong it may not be 100% spot on, but it should be big enough to cover for contingencies and unknowns.

Once you see the cost of something on paper you can do some round math. One thing I will be say to be careful of in the beginning is what the labor costs. We sub most of our work out ourselves and we understand the labor costs because we use the same subs over and over again. But in the beginning you may not understand what labor costs, this is where consulting with another investor or contractor will really help.

Grigory Pekarsky · Answer

I know how it goes: you find a property that is in need of some TLC and then the fun begins. You spend hours or days looking at floor plans, checking out the neighborhood, and driving by to see if there are any other houses on the block that look like they're in worse shape than this one. Then comes all those pesky questions: what kind of budget do I have? Will my contractor be able to work with me on pricing? What about permits – will we need them for this project? Is there anything else I should know before investing my time and money into this house?" "And so many more…"

Emily L. Wiersema · Answer

I recommend J Scott's booking on estimating rehab costs, it was really helpful when I got started. and much like running deal anyalsis I'd recommend running scope's of work.  Yes it is time consuming, but practice makes perfect and if you're aren't willing to invest the time there then you likely aren't willing to invest the time managing a rehab!  I have run scope of work on projects I submit offers on and had them not get accepted and yes it was a lot of time but it helps be get comfortable with numbers. My first deal I got three quotes for all the big items GC, roof/siding, and basement work.

Walking properties helps you understand little things like how many lights and doors will it need etc. so when you can walk a property definitely do it!

Tyler Haanen · Answer

Although I’m late to replying to you, I appreciate the response. That’s some sound advice. I thought about it more and there really is no amount of research I can do more at this point. I just need the experience of running  numbers on a real project and seeing how accurate my estimates come to be.

Again thanks for the reply.

And if there are any rehabbers in the Milwaukee area reading this that want a free lunch, just message me! :)

How to Sift through Properties for Rehabbing without seeing them?

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