Estimating Rehab costs

[Erich Hatch]

Hello, 

For anyone that is not well versed in rehab estimation, how do you go about calculating rehab costs if you are not going through a realtor to find deals? Do you get an inspection and just let the potential seller say they need to wait for that to be done, or do you hire a GC to give you an estimate?

TIA

Erich 

[Ryan Irwin]

Quote from @Erich Hatch:

Hello, 

For anyone that is not well versed in rehab estimation, how do you go about calculating rehab costs if you are not going through a realtor to find deals? Do you get an inspection and just let the potential seller say they need to wait for that to be done, or do you hire a GC to give you an estimate?

TIA

Erich 

 Great question @Erich Hatch.  If you're not experienced with rehab costs, then having a GC walk the property with you and providing quotes is a smart move.  They might charge you a couple hundred dollars, or they might not if they know they will get the work.  I like to walk the property with the inspector, so I can can get real-time feedback quickly.  Note, if there are things discovered that put you over budget and the seller won't negotiate, be comfortable in backing out of a deal even if you lose your earnest money.  Better to walk away from a deal that could cost you big.  

[Haider Tiwana]

get not one but a few estimates from various contractors. GC can end up cheaper bcus they already have established network with subcontractors. still, it's good to seek out those plumbers, flooring, painters etc to build your own estimate too. If you're not timebound in a deal it could be worth paying these guys separately $250 for their time to walk you through a house and build out an estimate, that way you have an idea how they work for future projects.

[Benjamin Aaker]

Getting multiple contractors involved will be your best bet to get a reliable estimate, though you need to come up with a scope of work. If you have some experience this will be easier, but you have to start somewhere. Get the inspection but remember they are looking for hazards and not considering what repairs will do to the final value or monthly rent. From the inspection write a list of exactly what you want. Finding the fixtures you want installed at the hardware store and pricing them is a must. This way you will be able to compare contractors' estimates, which can vary widely.

As you do this more often, you'll be able to keep a spreadsheet of per square foot prices for materials and labor to get things done and you'll be able to estimate this yourself. Remember to always budget 10-25% (depending on age/condition) extra as a buffer.

[Kole Bailey]

Hey Eric, it's a great question. For the first part of your question even if you were working with a realtor, I don't personally know many that have a true pulse on rehab costs and I wouldn't make any investment decisions based on their rehab cost projections.

My suggestion would be to study how to evaluate the Big 6 rehab costs: roof, siding, windows, HVAC, electrical, and plumbing. These 6 items all can require a significant cost to remedy so it's important to be able to identify the existing condition. Once you're able to analyze the existing condition of these 6 systems, you can then source piece rate pricing from sub contractors or a GC -- this may be done by quantity, day rate, etc. You can then apply that piece rate pricing as "another one of those" across any project you look at. For example, if you have knob and tub or black fabric wire you'll know you'll likely need a rewire or at least a major overhaul to make things work. Budget $10k for an overhaul. Budget $15-$20k for a rewire.

To take it a step further, if you build a relationship with your subcontractors they may even teach you how they estimate so you can repeatedly build a robust estimate completely on your own.

Excluded from the above is foundation issues & outages in the framing (often caused by foundation issues). If you're dealing with an early 1900s home this should be a serious consideration in addition to the above.

For the rest of the scope, the same rule applies. Establish piece rate pricing based on quantity, square footage, surface area, or linear footage and apply that to prospective projects. Then, with reasonable confidence you can estimate costs.

I personally don't love the square foot estimating method for remodeling as I think it is an easy way to lose. Just my two cents.

I'm open to connect if you'd like to discuss further.

Kole

[Kevin Sobilo]

@Erich Hatch, I think having a GC provide estimates is difficult. One suggested paying a GC a couple hundred for an estimate which sounds good until you realize you might do this 10-15 times before you buy a deal then you are spending thousands on estimates!

Also a GC can't give you an estimate by walking the property. You have to define the scope of work which can vary widely.

My approach doesn't require any special expertise in trades to make the estimates only that you are honest with yourself about your estimates.

I develop a high level scope of work and then make my own estimates for each item. Then I give an estimate of my certainty for each item and use that to calculate high and low values. When you add those up, it will give you 3 estimates.

For example:

Task             Estimate        % Certainty        Low        High

Demo              $5,000           90%                    $4,500    $5,500

Construction   $10,000          80%                    $8,000    $12,000

Plumbing         $8,000           75%                    $6,000    $10,000

Finish Work    $10,000           90%                    $9,000    $11,000

------------------------------------------------------------------------------

TOTAL             $33,000                                    $27,500  $38,500

So, if the estimate of $33k looks good and the high estimate of $38,500 is still "ok", I feel confident because its unlikely that EVERY item will be that far off. If these 2 estimates are REALLY far apart, you can also identify items you have a low certainty about and do more research to raise that certainty and narrow those estimates.

You also need to be able to rely on project management skills to manage the project to stay on track. To understand where the flexibility is in the project. If something happens to affect the cost you might be able to change the scope of work or timeline to compensate for that.   

[Jake Baker]

@Erich Hatch

First, I look at permit history. This can tell me a lot about the age of the plumbing, roof, HVAC, etc, before actually walking it.

Second, I look at listing photos and Google Earth Street View to assess the condition further.

Third, I determine a rehab scope and run it by my agent.

I have my agent, inspector, and contractor walk the property together. That way, I have my agent's opinion, an inspection report, and an itemized bid from my contractor.

[Sarah Brown]

I would walk the property with a couple of GC's and let them give me an idea.  It will behoove you to have a couple that you trust in your backpocket.  Keep in mind even their prices can vary widely, and until you have more experience, it will be hard to differentiate between reasonable and not.  So, just make sure you talk to more than one.  

[Greg Kasmer]

Quote from @Erich Hatch:

Hello, 

For anyone that is not well versed in rehab estimation, how do you go about calculating rehab costs if you are not going through a realtor to find deals? Do you get an inspection and just let the potential seller say they need to wait for that to be done, or do you hire a GC to give you an estimate?

TIA

Erich 

 Erich - I would echo other's comments, but also point you in the direction of a Bigger Pocket book, "Estimating Rehab Costs" - It's a 2019 version, so the actual dollar amounts will need to be increased, but it can give you a good starting point for the process that you can refine/update over time. 

The Book on Estimating Rehab Costs | Fix-and-Flip Investing Book – BiggerPockets Bookstore

[River Sava]

Hey Erich - 

If you’re not working with a realtor, I’d recommend bringing in a GC to walk the property and give you an estimate, that’s usually the most accurate. You can also learn average costs for common repairs in your market to get a ballpark figure yourself. Inspection reports are another good option if the seller allows it, but they might take more time.