Estimating Repair Costs To Make Accurate Offers
Estimating repair costs to make accurate offers is so important when you are looking at your next investment house. Think about this… So you got a lead and made an appointment to walk a house with the seller. You know you need to make the seller a cash offer while you are there. One of the many things you will need to do at your appointment is to get an understanding of what repairs will be needed and what those repairs are going to cost so that you can make the offer. Without this critical piece of information, you cannot make an accurate offer to purchase the house. We are going to go over the best ways to learn how to estimate repair costs so that you can make great offers and get your next flip house under contract without fear.
How To Accurately Estimate Repairs To Make The RIGHT Offer
This is one of the areas that can intimidate many new investors. Let’s be honest, most people who get into real estate don’t have construction backgrounds and haven’t hired contractors on a professional level. You have to make offers that are competitive in order to have them accepted. At the same time, you have to make offers that aren’t going to come back to bite you because you offered too much. Besides the ARV, the most important number when calculating your offer is the repair budget. Whether you are going to flip the house or attempt to wholesale it, you need to get this number as accurate as possible. This can be a challenge for newer investors. Don’t worry! I’ve got you covered when you are first starting out!
Foundation repairs, new roofs, taking down walls, and the always scary “load-bearing wall”. These things can be scary. And to be quite honest, there is really no good way to remove some of that fear without going through the process.
One thing I can tell you is that once you go through the process, things that seemed scary become common and things that seemed complicated will become less so.
Stating The Obvious On Estimating Repairs
The obvious solution to all this hubbub when it comes to estimating repairs is really quite simple. Get a bid from a contractor you intend to hire to do the job. It really is that obvious and that simple. Or is it? See in this business, you often don’t run appointments with your contractors. In order for your contractors to see the house you want them to bid, you have to have the house under contract. In order for you to get the house under contract, you have to get an offer accepted. In order for your offer to get accepted, you have to give a competitive offer that the seller is willing to accept without shooting yourself in the foot. By that I mean, let’s imagine you offer 100K for a house because you think it needs $20K in repairs. The seller agrees and you bring in your contractor or potential investor/buyer and they feel the house needs closer to $35K in repairs. Now you have to go to the seller and ask for a $15K price reduction. Are they going to be happy with you? Are they maybe going to tell you to pound sand? Have you likely just lost a deal? This is why we need to get within $5k or so of an actual repair budget WITHOUT having your contractor with you.
Learning How To Estimate Repairs
When it comes to estimating costs as a beginner, there are a few ways you can begin to develop your skills
One way is to have a vacant house under contract that needs repairs. This will give you the opportunity to bring in multiple contractors to give you bids. I strongly recommend not getting bids from big-time general contractors. More on why here.
House Under Contract Method
Running multiple trades through a house will start to give you an idea of the language and terminology that is common with each trade. For example, plumbers will use terms like rough-in, top out, and trim. You will want to know what these mean. Each trade has its own vernacular. You will want to learn it all. You will get lots of bids, advice, and ideas from these contractors. You will get a sense of how they expect to get paid, timing, and other details. You will also get legitimate bids. This will help you begin to understand what items will cost.
To start this process, I would plan on being at the house for a good portion of the day. I would make calls to contractors who I thought might legitimately do the work. I would schedule them back to back in 45-60 minute intervals. This will give them time if they are running slightly behind and will make sure you have enough time to walk the property with each contractor. Have an idea of what you want them to bid on so that as you walk the property, you can tell them what you want to be done. They will have additional questions to clarify. If you aren’t sure, just tell them. This is a great opportunity to learn. Use phrases like “what do you recommend?” “Is that normal?” “Who normally handles that?”…you get the picture. Dig for more information. This can only help you expand your knowledge base.
Cheatsheets To Estimate Repairs
When I first started in this business, I had a cheat sheet that helped me determine what my cost of repairs would be. This helped me determine how to make my offers. Below is an example of a cheat sheet you can use. I believe this is close enough to accurate to get you in the ballpark. Of course, you will want to do your own due diligence. Don’t rely solely on this information. This is just to help you get close. I have some examples of some cheat sheets I used when I was first starting out. Get in touch if you want me to send them your way!
Price Out Materials To Learn Repair Costs
Most of your trades are going to be labor only. You will need to start getting an idea of the cost of materials. It is a good idea to price out windows, flooring, kitchen sinks, faucets, shower fixtures, vanities, toilets…you get the picture. Anything you can think of, start getting an idea of what these things are going to cost from Lowe’s or Home Depot. The more detailed you get with this, the better prepared you will be. Additionally, when you collect bids, you can ask the contractors to provide you an estimated material list that you can use to get pricing.
Now You Have An Understanding Of Estimating Repairs and How To Get Started
Take this information, use it for what it is…a guideline. Go out and get some real-world pricing. Use the cheat sheet. Show it to contractors and find out where it is right and where it is wrong. Check these prices against Home Depot. Talk to contractors. Take notes while you are walking properties and go home and double-check them later. Find out what you missed or what you need improvement on. Make offers and use your option period wisely to learn and grow. Stay committed to learning and you will find this is going to be something you can do and handle with ease in the future.