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?
At this point you should have a pretty massive list of prices and items. Everything from pre-hung doors and drywall sheet all the way to light fixtures and kitchen sinks. Our next step is to turn this sheet into a usable quick reference that allows you to completely and accurately estimate costs. It’s nice to be able to spend two hours in a vacant empty house really getting a clear idea of what work needs to be done, but most of the time we have 15-20 minutes walking thru the house with the owner trying to both estimate costs and build rapport with the owner. In this case, having an accessible and manageable sheet is vital.
For us, the best way to organize your cost sheet is start by compartmentalizing anything that can be. This means looking at individual sections or parts of the house and trying to build all the costs into a simple number. This number will depend typically on the size of the space and the level of finish. Let’s take a look at bathrooms as an example.
What goes into a totally new bathroom?
- Shower hardware
- Sink Hardware
- Light fixtures
- GFCI outlets
- Hardware (towel racks, toilet paper etc)
- Installation costs
A few of these items will have a variable cost across different finishes (tile, tub, sink, etc) some will not (outlets, installation). So now we want to attempt to produce numbers at three specific levels assuming a certain size of room. Our final number can be a summary cost (e.g. a 10X10 mid level bathroom is XX dollars) or a per square foot cost (e.g. a mid level bathroom will be XX dollars per square foot). The specific component whose costs you are trying to compartmentalize will determine which of these numbers is more accurate in the long run.
The final component is assessing for natural variation in the section you are compartmentalizing. Using our bathroom example we may wish to attempt to factor in the proportional increase in cost for a master suite instead of a regular bathroom. We have found its simplest to have it be a percentage increase from the base cost (e.g. If master suite, add 50%). This keeps things simple on the sheet and in the final tally.
The other type of cost compartmentalization that you should consider goes macro instead of micro. Consider something like trim. Trim is necessary with all new doors and windows and can (and should) be built into the costs of those components. (Price the window, the installation cost, the trim and the trim carpentery all together) But what about baseboards? This can drastically improve the appearance of a house. Are you going to spend your time getting the exact wall length in each individual room? It’s probably more efficient for you to estimate a cost based on the square footage of the house and your carpenter’s hourly. (e.g. A 1500 sq ft house needs XX dollars in baseboards). Gutters are another example of this type of material.
We’ve found it useful to also keep certain numbers together by floor. These items include drywall, flooring, windows etc. This way when we do our totals we know that the $3000 in hardwood is just for the foyer of the second floor, etc.
You also want to be sure you that you have a total sheet at the end and a designated space for anything unusual or neglected by the sheet’s current layout. That way when the property goes back on the market three months from now and you want to update your offer you will have one simple sheet to refer to.
Our sheet typically floats between 4-8 pages. The more variety of styles and designs of housing you consider, the longer your sheet will likely be. If you live in a sub-division or a town where everything is bungalows, you may have a shorter sheet.
Keep in mind that refining this sheet is an iterative process that will be refined over time. Each time you use the sheet, sit down directly afterwards ( I record on my phone in my car before I drive away) on exactly what was missing or hard to use on our sheet. A refined and well developed cost sheet can be an anchor for your business and something that you must continue to refine and update over time. Knowing your costs to the penny and being able to consistently predict them accurately will make you a more competitive and profitable rehabber or wholesaler.
We’d love to hear your feedback on our process for creating a cost sheet and whether you’ve found this series useful.
By Nate Baumgart