The first and most important skill of a flipper or wholesaler is estimating repair costs. Overestimate and you will never make competitive offers, underestimate and you can deal your business a fatal blow before you even get started. But how do you estimate costs when you’ve never rehabbed a house before? How can you know what a contractor will charge when you’ve never hired one before?
So! You should now have a master list of repairs and their average costs. The list should include everything from foundation cracks and replacing outlets to putting on additions and building a new garage. Be aware that your repair list will take a while to be complete. You may have holes in it now that you have already recognized need to be filled.
Don’t sweat it!
Each time you use the sheet you will notice a few things missing or wrong with it. Here at Reboot, we added a special section in our repair sheet for things that needed to be fixed on the repair sheet itself. That way when we pick that repair sheet up later, we don’t need to scratch our heads trying to remember what was out of place or missing.
You should have the cost of most labor and tasks laid out at this point. You probably even have basic outlines of costs of more commodity priced materials like lumber, windows, doors etc. What you don’t have is a price list for the more stylistic elements of each rehab. These include (but are not limited to): paint colors, cabinets, trim styles, vanities, sinks, appliances, light fixtures, railings and much more. These elements are particularly important so that you are appropriately balancing the cost and level of your finish with the houses in the neighborhood that you are competing against to sell your finished project.
As you begin to create this list save yourself some time and begin tiering it. The most basic division is into three levels of rehab: low, medium and high. Low will typically be your rental properties or lower income housing. Medium for us here at Reboot is anything under $450,000. High is anything above that. Keep in mind, we work in a major urban area where property prices may be significantly higher than where you live. Make sure that your levels of finish match the surrounding area and adjust your price threshold for those levels accordingly.
Starting out, you will want to focus most of your time on your medium level materials list. The middle area has the best balance of cost, risk and profit and is where most people start out. Low end properties can have slim margins and high end can involve costly and complicated custom improvements.
The list should be easy to create while you are thinking about appliances: simply pick one for each category and add it to your repair estimate sheet. (Remember to include tax! $4,000 or 5,000 in appliances can add up to a pretty big chunk of tax.)
More complicated to price will be things like bathroom tile, kitchen backsplash, hardwood flooring, or anything else that has a variety of colors, finishes or price levels. If you are having trouble choosing, the easiest (and smartest) thing to do is to find the neighborhood you want to work in and check out the newly rehabbed houses with a short market time. Look up listing photos on Redfin or Zillow. Match the finishes to the price level and you have a handy reference for what sells well in your market. Remember to phrase your pricing in terms that will be easy to estimate while you are on site: e.g. by square or linear foot.
A final great resource for design ideas and looks is: http://www.houzz.com/. Houzz has whole rooms broken down into their component parts and can really get your imagination going. Just don’t let your imagination run away with you.
Remember! This is a business and no matter how much we enjoy the process of designing, the first concern should always be what sells!
Next post we will cover the process of taking this now bloated and massive repair sheet and turning it into something workable that can actually be used in the amount of time you often have to inspect a house.
See you then!
By Nate Baumgart