Estimating Renovation Costs

Probably the single most asked question of me from other prospective investors is how to properly and accurately estimate renovation (rehab) costs on a residential flip. My answer is always premised with the fact that you do NOT need to know how to swing a hammer, rather when it should be swung and how much it costs to swing it.

Others have suggested to have contractors come out and look at a subject property and provide a bid. The problem with this is that the contractor may be doing quite a few of these for you when in fact, none of them will be purchased. Unless you are paying him for his time, which can get expensive, he or she is not going to keep doing it for you and you risk burning your relationship you are trying to create. Also, how do you know if that bid is too high, too low, or perhaps the time estimate is too long? The only way you are going to know that is if you get competing bids, again, not a viable or cost effective means to learn this.

It is my suggestion that you learn yourself and the first step in learning the costs is to create an itemized list of typical expenses, both for material and installation and then fill in these costs by going to your major box stores like Home Depot or Lowes. I am happy to supply you with my list. Many of the items at these box stores also have installation pricing, and though this is typically higher than what you should expect to pay, it is a good starting point when learning. You should then speak to a few contractors and get their typical installation pricing for the main items like tile installation per sq. ft., carpet installation, kitchen cabinet and vanity installation, paint, etc.

Estimating the costs of a rehab are more easily done when you break down the home into sections. For example, the main sections of any rehab are the kitchen (cabinets, counter tops, appliances), bathrooms (vanities, tubs, tile floors and walls, mirror, toilet), paint (both interior and exterior), flooring (wood, carpet, tile, stone), base and case, windows and doors, stucco and siding, roof, landscaping (front and back), electrical, plumbing, HVAC, & misc. Once you have done this, you can refer to your sheet of costs and start adding them up. 

Practice this technique by going to as many showings and open houses as possible. Try to pick the ones that need work, are listed as handyman specials, etc. You can check your work by getting some contractors to look it over or have another experienced investor in your area look it over.