Tips To Help Real Estate Investors Make Better Rehab Estimates – Part 1

Estimating rehab costs is mission critical when it comes to determining if there is enough of a profit margin to make a purchase worthwhile.

Here are some of the main considerations every real estate investor needs to take into account before an offer is made and accepted.

 

1. Determine Your Goal

What’s the plan for the property? Will you do a pre-hab and clean it out for another investor or contractor-buyer to take over?

Will you fix it to rent for longer-term income?

Or will you do a full repair and fix in order to sell to a retail buyer?

This decision will at minimum guide your choices of materials and help you decide which items to repair or replace, and which to enhance or leave as-is.

For example, if you’re evaluating a home that has structural issues such as a strange floor layout and you want to get it ready for the retail market, then you may need to factor in the cost of re-constructing the layout into a more user-friendly and appealing setting.

You’ll be faced with budget decisions for both cosmetic and structural fix-ups.

Another costly matter could be number of bedrooms. Often you’ll come across a home with an inaccurate bedroom count.

That’s because a bedroom is technically not a bedroom unless it has a closet. If you run into this situation, one solution is to make it an office space instead.

Yet if the extra bedroom is needed in order to help sell the property, then you’ll have to budget for the addition of a proper closet.

However; if the home will be a rental, you can avoid the extra cost and simply check into storage options available at retail stores today.

 

2. Rehab Apps – To Use Or Not To Use?

While some of the apps available for real estate flippers can help you come up with quick cost figures for most rehab projects, there is still a lot to be said for eyeballing a property and for coming up with your own, first-hand repair cost estimates.

Try to make the best observations at the initial walk-through so you can avoid many trips back. Pure facts and figures you put into an app don’t always paint a true picture of what needs to be done so a careful, first-hand assessment can surely be worth your time to complete.

Another reason in favor of manual assessments is that contractors quote a job based on the square footage number you provide.

This is not always the best way to calculate your truest purchase cost because you must factor into the equation other important factors, such as outstanding mortgage amount still due or property taxes when these are part of the deal.

Additionally, there can sometimes be wiggle room regarding labor cost estimates.

An app won’t tell you that. This is one area where real estate investing savvy can help.

That’s because labor cost doesn’t always equal quality. Sometimes a good contractor has a team of qualified labor that is less expensive that you may imagine.

Conduct a good search and check references. You may get a nice surprise and find exactly what you need and at a budget-friendly cost.

In tomorrow’s follow up, we will disclose the final 3 tips.

Mike Corgiat
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