Whether you’re buying a property to flip, to keep as a rental or as your next home - an accurate estimate of the total rehab cost is an essential part of any sound real estate decision. Building a comprehensive estimate can take time and patience, which means too many people overlook its importance. But when you realize that good deal isn’t as good as you thought, or find out the full potential of an opportunity, you’ll be happy to have done your due diligence.
Know Your Neighborhood & Buyer
If you’re looking to move to a new home, you’ve probably looked closely at the neighborhood. You know what the schools are like, what the other houses around you are valued at, the amenities of the neighborhood and the general nature of the community you’re thinking of joining. If you’re looking to flip a property or rehab it as a rental, this assessment of the neighborhood is still a crucial step to take. It gives you the ability to make sound decisions about your rehab. You won’t want to add custom marble countertops if the potential buyers aren’t interested in paying for them.
Make a Thorough Walk-Through
Walk carefully through the house you’re looking at. Take notes of everything, and use the camera on your phone generously. Remembering all the details, exactly what needs to be replaced and what can be repaired, will be difficult if not impossible, so make a list. Refinish living room floors. Replace kitchen counters. Waterproof basement. Write it all down as your go through each room.
Categorize the Rehab List
Once you’ve got your list, it’s time to start grouping by category. Think of a home improvement box store. What will you need from the paint department? What will you need from plumping? Group the renovations you need to make like with like. Go through each room and write what it will need from each of your categories. This will make it much easier when you start adding in the numbers.
Estimate the Rehab Cost
You know what rooms need to be painted, you know how much paint you’ll need. Now it’s time to start pricing. Visit those box stores. Call your local contractors. Tell them what you need done and ask for an estimate. And remember, whether you’re getting new carpet or replacing a roof, there’s always going to be a high and a low end, so price out both. You can take the average of the high and low, or keep your estimate on a range. It’s also important to keep in mind that costs fluctuate. Sometimes by a little, sometimes by a lot. Building as accurate an estimate as possible is the best way to buffer yourself from unexpected fluctuations.
Examine Any Soft Costs or Hidden Fees
You’ve made a list of the work that needs to be done, you’ve called local contractors and gotten estimates on what the materials and labor will be, but that’s not where your rehab project costs stop. Remember that there are more than just the construction costs. Do you need to pay for any permits? Are there legal, architectural or engineering fees? Did you include commission and appraisal costs? As you can see, there are all sorts of ways the cost of a rehab can creep up if you’re not accounting for everything.
Rehabs, like any big project, have plenty of unexpected costs. Sometimes no matter how thorough you are, there are issues that haven’t been accounted for. But by starting off with a strong plan of action, and following through with attention to detail, you can keep those surprises to a minimum. And make smart investment decisions armed with a comprehensive rehab analysis.
Have you done any big property rehabs or home renovation projects? What were your experiences? Have questions about a rehab project? Leave your comments below. We’d love to hear from you!