Is There an Easier Way to Estimate Rehab Costs?
Estimating rehab costs is something many real estate investors struggle with. You can streamline the process with these tips.
A key part of making your house flipping business a successful endeavor is estimating rehab costs accurately and efficiently. Gaining experience as a real estate investor has all sorts of hurdles. Once you master certain obstacles, you’ll know how to maximize your profit and estimate rehab costs more seamlessly.
That’s why we’re here to walk you though the simple steps of estimating your rehab costs. This article will help you rethink ways to simplify your process with a little help from Sundae along the way.
Start with the end in mind: defining your target buyer
If you think about it, your rehab’s end result is going to appeal to a certain type of buyer. Are you going for a high-end finish? An economical property with the right touch-ups? Not to mention, there’s plenty of desired end results besides these two examples. Without an end in mind, designing a property to appeal to your ideal buyer gets a lot harder.
You should also think about your neighborhood and what other properties look like (comps). Your neighborhood might be growing fast and where other investors are moving in, adding renovations left and right. Study these other houses so that your property fits the mold.
It wouldn’t look appealing to potential buyers if your desired finish makes your investment property look “low-end” compared to the rest of an upscale neighborhood. Even if you saved money on rehab costs, your house might not get top dollar. You can also over rehab a property. For example, in a blue-collar neighborhood you may not yield high returns on top-tier finishes. Investors can lose money if they don’t estimate renovations in accordance with what buyers want in a given area.
Extensive virtual walkthroughs make estimating rehab costs easier
Some properties need tons of work, whereas others you can clean and list. Even if they are minor improvements, costs add up quickly. When you’re evaluating the property, make sure you keep notes or documentation of the condition along with what needs to be updated.
As you do a walkthrough, take videos, pictures, and notes so you don’t have to remember the rehab strategy off the top of your head. Virtual walkthroughs provide a way to have this at your fingertips at all times. Typically, properties on Sundae’s Marketplace include:
- Interior and exterior property photos
- 3D tours
- Floor plans
- Home inspection reports
- Title reports
That way, you can estimate costs from your computer and even invest in markets across the country with confidence.
You can’t get the right rehab cost estimates without knowing your property inside out. It’s going to help you visualize your rehab estimates and prioritize effectively. For instance, you may notice that your bathrooms are in good condition but need updated flooring. So you would write down, “bathroom condition: fair” with your note about the floor as you complete your virtual tour. It’s crucial to make notes for the next couple steps where you need to make categories and measure your property space.
The best part is that you don’t need to drive to the property, but have many resources that can help inform your budget. Be sure to take notes and double check everything.
Categorize and sort
It’s easier to estimate rehab costs when you break down each section of the house.
After you analyze the property, look inside and go room-by-room. Break down your notes into categories and create sections. Large problems like an aging roof, warped foundation, or termites are signs of potential big ticket items. Then there are smaller issues like landscaping, chipped cabinets, and old sinks that are less work, but also add great value to your home. In this case it’s easier to show an example of how you can get organized with categories.
- Appliances (microwave, stove top)
- Cabinets (chipped corners, old paint)
- Light Fixtures (need updating)
- Landscaping (trees, garden, lawn)
- Porch (needs a power wash)
- Fence (needs new paint)
- Flooring (old, needs replacement)
- Sink (replacement)
- Shower (replacement, need more space)
- Walls (needs new paint)
- Windows (replacement)
- Closet doors (replacement)
Once everything looks nice and organized, you can use a property’s floor plans to start measuring your dimensions and square footage of each home section.
Need to get rid of that carpet in the living room and replace it with oak hardwood? Measure the square footage of the floor and add to your notes in the living room category. What about the cabinets that need replacing in the kitchen? Measure the dimensions so that when you make calls, you know the replacement size.
Estimate your rehab costs
Start by making calls to your local hardware stores, lumber yards, and other key vendors. Tell suppliers what you need and ask questions. Call contractors and ask even more questions. Search online and look for home improvement forums, blogs and videos. You’ll be able to identify the dos and don’ts of your rehab checklist along with which materials are trending in the right direction.
Try to get different price estimates for each rehab project. Keep adding to your notes and make sure it stays organized. If you can, ask about an estimated time that it takes to complete each project while you’re making calls and doing research. One last step you should do however, is thinking about hidden costs so you don’t get blindsided. Some extra costs you’ll also want to consider as needed include:
- Permits in your local area
- Removal services
- Pest and fumigation services
After completing your underwriting and crunching the numbers, you’ll have a good idea of what your rehab will cost. You’ll also have a ballpark estimate of what your return could be.
Little steps go a long way
Taking simple steps to estimate your rehab costs sets you up for success. With these concepts, you’ll be able to streamline the process. Always remember that time is your most valuable asset.