BRRRR Rehab Estimate

[Elias Parisca]

Hi All, 

I'm looking to do my first long-distance BRRRR with no prior of experience with rehabbing. My biggest difficulty analyzing properties is projecting rehab costs. I'm reading J Scott's books on Estimating Rehabbing Costs, but I still feel I'm no closer to be able to estimate rehab costs with any confidence, especially when I'm looking at listings with only photos, some with bad photos or no photos at all. Do you rely on your local agents or contractors to come up with a rehab estimate for each property that you analyze?

Any guidance will be much appreciated.

Happy Valentine's Day people!

Elias

[Simone G.]

@Elias Parisca, @Andrew Postell is absolutely informed and correct as it relates to building costs currently. 

The best way to determine the costs of an OOS flip is to first do a BRRRR close to home and manage the nightmare within a an hour's drive. ;)

If you can't do that, ally with someone close by who is flipping, and offer to be of value in exchange for insight and access to the process. Do not present as competition, present as a life line in some way. Unsure what resource you can barter, but get creative - this could be a warm intro to a low interest private lender, build them a website, whatever your special sauce is, leverage it.  

That way, once you've been the project manager on your own 'within reach' flip, you'll be able to have a realistic scope of your OOS one. Labor costs vary from state to state, but if a painter tells you it will take ten days and $xx to paint an interior of a 3/2 home, you now know that is BS. 

I can only speak to our construction business in Southern California, but here is a smattering of what we've experienced from the impact of COVID in the past 6-8 months as a general contractor:

1. Lumber costs have tripled/quadrupled - thus framing bids look like typos. Basically the mills shut down at the start of quarantine, workforce got laid off, then they started up again, but it was difficult to hire back the labor to run the mills. Cue dropping interest rates, cheap money, more building demand and it was the perfect storm for a supply and demand conflict. 

2. Labor costs have increased a third, in some cases doubled, and avail is 2-4 months out, contingent upon the sub. Some subs work weekends now - they're basically being poached by longer term, higher paying industrial/commercial builders who have 6-9 month contracts whereas in the past most subs needed to find their own work from job to job with GCs. This is because with reduced commuting and continued shut down and vacancies, all those freeway projects, city buildings and schools are finally getting the carte blanche to renovate, remodel, improve and build. That takes a lot of labor to satisfy and if you're a union electrician, plumber or painter, which gig are you going to choose? 

3. Materials across the board (no pun) are backordered. See above. We are still waiting on a door for a client that was ordered in September of 2020; windows are backordered; the list goes on.

4. OSHA wants you to build masked, six feet apart on a construction site. So there's that. 

5. Permitting approval for footprint changes (and every contractor "knows someone with the city") is six-nine months out. 

Those whom I know manage OOS flips do cosmetic only and turn their realtor in to a project manager with the promise of the listing of the ARV flip. They FaceTime the property, do video walk throughs, manage the draws for the contractor, etc.. An established realtor (5+ years in the business) also has the relationships with the subs if no contractor is needed and it's all a la carte tasks like a painter/electrician/flooring/tile play.

All this aside, decide on a region, call 5-10 realtors in that area, vet them, and turn them in to allies. I know some use (future) property managers as project managers, but I trust realtors over PMs because realtors have a more regulated industry with checks and balances - you can always go to the board or their broker if an issue arises. 

Hope that helps. PM me if you want more honest contractor insight, I know California is heavily regulated, but a lot of our wholesalers and materials are from midwest and East Coast.