Originally posted by @Ned Carey:
@Dale Couture I don't know what guides you are looking at but they are wrong. Many guides are designed for homeowners making improvements to their homes. This doesn't really apply to investors buying fixer uppers.
To figure what it is worth when you are done renovations you use comparable sales to estimate value. Those comparable sales should be comparable in condition to the level you will renovate to.
To figure what it is worth before renovations you work backwards from the After Repaired Value (ARV). A common formula is ARV X70% - repairs = Maximum offer price. The 30% accounts for all the costs of buying, holding and reselling and your profit. The buying, holding and selling costs (sometimes called soft costs or hidden costs) are often much more than new investors consider. They can easily add up to 10-20% of the end sale price.
Yes, Ned is spot on. I'm not sure what guides you read but there are quite a few improvements that will drastically bring the value of the home up. The old quote "Kitchens and bathrooms sell homes" is extremely true for this along with other things like flooring and curb appeal. Estimating repairs and closing costs is one of the hardest things to do and takes some time/experience of just crunching numbers on deals. Just to give you a ball park of estimate ideas, I usually take the sq ft of house and do some math based off pics and what I know. I'm in Houston so please take this with a big grain of salt because all areas around the US are different. This is just a super basic formula to get some numbers flowing
15$ per sq/ft = Minor rehab
20$ per sq/ft = more serious rehab
$25 per sq/ft =. been gutted and needs everything
This doesn't apply to major things like Roof, Foundation, A/C, etc because those can vary greatly. This also could go up depending on how high end of a home you have vs. basic flip vs. rental.
