Estimating Rehab Costs
The next thing you need to do when analyzing the deal is Guesstimate the rehab costs.
As an investor, when you are analyzing deals, you have to move fast! If you spend the time walking the property and get multiple contractor rehab bids, chances are another investor will have already purchased the house.
At the same time, how do you accurately go through the deal analyzing equation, without having any clue how to estimate your rehab costs?
I understand this can be challenging, but it will get easier with experience and as you build a relationship with a contractor(s). As you build a relationship with a contractor they can start to tell you the general cost per square foot to renovate the entire interior of the house.
For example, a full cosmetic rehab may cost $60 per square foot. Of course this can vary depending on how many bathrooms or the quality of finishes you want. Or…. a full gut renovation may cost $80 per square foot on average. Using these numbers can give you a good starting point on estimating your rehab costs.
BUT… Do not forget to add a contingency. There will always be hidden costs behind the walls that these estimates won’t account for. I like to add at least a 15% contingency to my estimated rehab cost. For example, if I estimate the renovation cost to be $100,000 dollars, I add $15,000 dollars to my repair estimate.
There are also rehab estimate tools out there that can guide you. The costs per line item will be based on national averages so it is important to update depending on your market.
Once you build a relationship with a contractor you can go through a repair estimator like this one together to dial in each cost per line item. Even if you have your repair estimator dialed in it is only as accurate as your Scope of Work (SOW).
This is why it is best to communicate with a trusted contractor as much as possible.
How to determine the hidden costs: closing costs, commissions, and cost.