Estimating rehab costs like a pro involves looking at real estate with a certain set of lenses. What has taken decades to master, you can learn by simply taking a walk with me through a property. There has been a recent trend to try to shortcut calculating how much it is going to cost to fix up a house by using rehab calculator apps or online software tools. As you're about to see, a simple calculator from the dollar store is all you need. The key is in how you analyze the property. The following video will show you exactly how to analyze a property so that you too can begin to estimate rehab costs like a pro.
Let's talk creativity. When working on a home rehab, ditch the rehab app or calculator! These will do you no favors and will only provide unnecessary layers to your rehab process. For example, upon first look, a roof might look like it needs to be replaced. Upon further inspection, it might only be dirty and need a good pressure wash!
What is the overall goal? Is it to complete rehab, then sell it to a retail buyer? Are you planning Prehab where you will clean it out, and flip it to a novice or contract investor buyer? Or are you planning to take it over and rent it out? Asking yourself these questions will help you determine what changes need to be made within the home.
The level of the neighborhood will determine the level of materials you will need to purchase. Nicer areas will require nicer materials. For example, different qualities of paint for different quality homes.
The cost of labor does not always equal quality. Sometimes the best contractors are not that expenses. And finally, what needs to be done?
What to Bring with You to the Home
I highly recommend bringing a tape measure and something to write with and on. Renovation costs are much easier to determine when you have the square footage of the home.
Write Down What Needs to be Done
In addition to writing everything down, make sure to look for obvious signs of trouble, wet spots on the ceilings and if the carpet needs replacing. Quality of carpet will depend on neighborhood.
Do not worry about the costs of the rehab yet Just focus on everything you see that may need fixing.
The Overall Goal Will Determine What Needs to be Done
If you are looking to buy, to renovate, and to sell to a retail buyer, you might want to make some minor changes to help with the “flow” of the home. These are called cosmetic fixes. If you are buying to lease out you can often choose cheaper fixes or leave some things the same.
“The kitchen and bath sell the home”
Be more critical in the kitchen because buyers tend to be more picky about this area. Cabinets might be able to be painted and have the hardware changed instead of replacing, but with all of the grime and work that entails, but sometimes it is more efficient to buy new ones. Older appliance will also need to be replaced to make the home functional.
When you open up underneath the sink, look for stains. This will let you know if there is a plumbing problem. If the flooring is not in good shape it will need to be replaced with laminate.
If you are walking around the property with a seller, you do not have to overly point out the problems. Simply make a note every time you see a problem. The seller will see you writing so they will know that you have noticed things. It is part of a negotiation strategy. Small facial expressions and notes help a seller lower the expectations of what they will get for the home.
If you are worried you will lose out on a home if you do not make an immediate offer here is another tip:
- Measure the rehab costs by $5,000s
- If a home only needs a little minor cosmetic work: $5,000
- If a home need a little bit more work then that: $10,000
- If you overestimate, that is good for you!
- If you underestimate, do not panic. You can always bring this up to the seller when you do your due diligence, after the property is under contract.
More Inside Tips For Rehab Costs
Master bedrooms with bathrooms up the value of the home.
A bedroom is not technically considered a bedroom unless it has a closet
If a room does not have a closet, it is considered an office space, but if you want to make it a bedroom you can add a closet.
Look for leaks in the garage and try to find their sources.
Check if the water heater is gas or electric.
Most people do not like gas water heaters.
Check out the breaker box and see how ancient it looks.
Outside Cosmetic Tips
Look Things That Might Be a Problem. Observe the paint condition, porches, landscaping, water damage and signs of termites.
Waterfront property instantly adds value, so if yours has this, consider yourself lucky! However, not having a yard can often be a negative. It will reduce the marketability of the property.
AC unit is very important. Get a visual, turn it on and see if works. Being hands on will ensure due diligence as you inspect the property. Take a picture of the newest sticker on the unit, this will help determine when it was last serviced. Also take note of the model number and year it was built
Gather as much information as possible in your first walkthrough. Sellers appreciate you not needing to come by multiple times to get all of the details, so make sure to be considerate of them. You can also take photos to remind you of what you saw and can reference them later on. So, collect all of your notes and think about what you can really do with the house.
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