The Skill of Estimating Repairs
by Randy Lawrence |
…a key skill you need as an investor.
As a real estate investor (e.g., rehabbing single family homes), this is a key skill you need. Don’t rely entirely on contractors and tradesman to do this. Remember you are competing for good deals so you don’t have much time to analyze and make an offer yet you need to know the feasibility of this project and if it’s a money maker or loser. If you completely rely on them, it will slow your due diligence down AND you could end up with is retail estimates and recommendations not suitable for INVESTORS!
- Remember you have a ballpark repair cost rule of thumb. It’s the $20/sq. ft. standard cosmetic rule. Ex: 1,500 sq. ft house approximately $30,000 rehab cost. With skill and experience you’ll beat this but this is your first benchmark.
- Now your need to get more precise in your estimate of rehab costs based on the condition of each house. You don’t have to know every little detail but understand the project’s feasibility.
I am going to share some useful guidelines, tools and steps so you can gain proficiency in this process.
- In Part 1 of this 3-part post, I’ll give you the first steps in this process.
- In Part 2 I’ll provide some cost guidelines for exterior repairs.
- In Part 3 I will provide cost estimates for interior repairs.
- I’m also releasing 4 podcast episodes on this topic. So head over to iTunes or Stitcher Radio, take a listen, and bring your notepad!
Walk the property – now that you have engaged the owner of a potential deal and ball parked the cost of renovation (e.g., the $20 per square foot rule), its time to get more specific on what’s it going to cost to get this ugly duckling turned into a prince. A better understanding of these costs will help you make the right offer because you should know what the house is worth in good condition and now you’ll know what it’s going to cost you to get it there. This is a huge part in determining if you have a good deal on your hands.
- First start with the front of the house and proceed in a clockwise fashion whether you’re walking the outside of the house or room by room inside. Hint: This is a repeatable process and so you don’t miss anything.
- Use a repair checklist so you stay organized and take good records
- Start with the exterior then interior
- Note all defects, repairs, cosmetic upgrades needed to bring home to retail ready condition – remember you aren’t looking to make the house perfect but will need to cover what home buyers will be focused on (e.g., kitchen, bathrooms, HVAC, roof, paint, etc.)
Your conclusion should be a property condition ranging from extensive to light cosmetic repairs AND details on renovation costs estimates. For beginners shy away from structural repairs and extensive repairs. – Your sweet spot should be light to moderate cosmetic repairs.
Stay tuned for OK, So What’s It Going To Costs Me? (Part 2 of 3)