Making an accurate house repair estimate for a house flip is very important. Choosing which house to flip is a big decision and not necessarily easy.
Unless an investor knows how to accurately estimate repair costs, he will not be able to flip a house profitably. The cost/benefits of taking on a project very much depend on the investor’s ability to estimate repairs quickly and accurately.
Estimating Materials and Labor
Expect Costs to Change
The more time you own a property before the re-sale, the higher your expenses like taxes, insurance, utilities, and maintenance become. The faster you get a rehab finished, the bigger your profit on the house sale will be. Nevertheless, you can’t control everything so be prepared for your investment and carrying costs to change.
To keep your materials costs from escalating, try to buy most of your materials in advance of the rehab project. Make sure that everything bought is refundable to protect from over-buying materials.
Title problems can also keep the home sale from closing and increase your carrying costs.
So, how does a new buyer learn how to make a house repair estimate when they know little about construction?
1. Find Someone Who Knows About Home Renovation
The quickest way to learn what repairs are necessary and their cost is to talk to an experienced investor. Find a local rehabber that has been in the business for several years and does a lot of house rehabs. Ask him to help you estimate the rehab costs on a flip — he may charge a fee or want to become your partner (not a bad idea if you’re new to the flipping game).
If this does not work, you can approach a contractor that works for house investors.
There are several ways to find these investment rehab contractors:
- Drive through neighborhoods and look for ongoing rehabs
- Call the ‘we buy houses’ advertising signs
- Go to local real estate investor meetings
- Google “rehab contractor your city” and call a few that come up
2. Give Them Something In Exchange For Their Help
Do not expect people to take time out of their busy schedules to spend hours helping you make a house repair estimate for your rehab property. Make sure you offer them something valuable in exchange for their time and effort.
Here are some things you can offer:
- Money (gee who thought of that? 🙂
- A gift card for dinner for two at a nice steak restaurant in town
- Offer to send them your property deals first when wholesaling
- Offer to do some type of work for them in return (contractors always need legal, accounting, and marketing work)
3. Get Their Hands-On Guidance
An investor can get great guidance from an experienced person. Go through a house that needs a lot of repairs with your new advisor and ask for the typical costs for every item in the house. Try to get a good understanding of the average costs for everything you see.
4. Take Good Notes
Make sure that you take notes of everything he/she says. You can even video the entire experience to not miss anything. Remember, what may be obvious to a professional contractor or experienced house flipper may not be obvious to a new investor just starting out.
5. Visit Local Home Improvement Stores
Take a trip to the big home improvement stores and find the materials that will be needed. Write the details of the items down or take pictures of them. This includes the items’ names, prices, and SKU numbers. This will help you categorize and calculate the cost of all the materials needed.
You can create a spreadsheet database of these materials for future use. This will save a lot of time when making a future house repair estimate.
This also helps you know exactly what materials to use and what they will cost for any property rehab in your area.
Here are the essential steps to estimate house item replacements:
- Determine the life expectancy
- Determine the current age of each item
- Calculate the estimated remaining life expectancy
Rank the house items in order of increasing estimated remaining life expectancy and then plan for any expenses required in the next five years.
Watch for any upcoming “expense clusters” – A high amount of maintenance costs in a short period of time
Major Rehab Items to Estimate for Houses
You must check if the roof is leaking or not.
Before buying or selling a house to potential home buyers, an investor needs to know if the roof is repairable or not.
A leak may cause significant structural and interior damage over time which may require far more money from your pocket, especially if there are title delays.
Different types of roofs have differing lifespans. Fiber cement shingles last about 25 years, wood shake roofs will last about 30 years, asphalt shingle/composition roofs last about 20 years. So, before you decide to change a roof, check whether its age might require it.
Replacing old windows with newer and more efficient ones is a very common way to give the home more overall appeal. You can tell if the windows need replacing if the seals are broken or cracked. There are other ways to tell if the windows need replacing as well.
Heating and Air Conditioning
Replacing air conditioning units is not cheap. So try to check if the unit will work OK with some low-cost repairs before investing in a new one.
No matter what type of A/C unit the house has, it should be expected to last for a few decades with regular maintenance and upkeep. So, if the previous owners had replaced the unit recently, a new one will likely not be needed.
A kitchen is a very important part of a house. Low-cost kitchen repairs and updates such as refacing the cabinets, applying a new coat of paint, or replacing hardware are typically enough for a house flip.
Make sure to replace only those things in the kitchen which cannot be repaired by the new owners. Replacing everything in a kitchen requires a large budget and is rarely worth it to an investor.
Exterior Painting or Siding
Exterior siding is not cheap and usually needs to be replaced after 10-20 years. Painting is a cheaper option.
Accurate Cost Estimation is Crucial
By following these essential steps, a real estate investor can make an accurate house repair estimate that is the difference between making or losing money. Not knowing which items to repair or replace and how much things will cost (and when) can put you at a huge disadvantage in the house flipping game.
If you don’t want to spend the time building your own cost estimate spreadsheet, here’s an excellent one with a free trial.
Avoid losing money by getting really good at estimating costs! Otherwise, you are likely to invest in the wrong property or end up spending money on the wrong things!
Learn When to Use a Renovation Cost Estimator in this article >