Estimating Renovation Costs: A Guide for Real Estate Investors
Today's blog post focuses on the crucial, yet often overwhelming, aspect of estimating renovation costs. For many budding investors, accurate calculations are vital as errors can significantly affect profitability. By the end of this article, we hope to empower you with the understanding and confidence required to competently estimate renovation expenses.
Insights from Veteran Real Estate Investors
Before diving into the details of renovation cost estimation, let's glean wisdom from two seasoned real estate professionals. Meet David Lecko, boasting nine successful deals and nearly a million dollars in equity, and Ryan Haywood, a titan with over 300 real estate transactions and ownership of 40 rental properties under his belt.
Ryan recounts his initial days as a wholesale investor and the transformative realization of real estate's immense potential. Within a mere 14 days, he and his partner celebrated their first deal, netting an impressive $8,500 assignment fee. Such triumph only ignited their drive to secure more deals and grow their investment footprint.
Meanwhile, David shares his adapted version of Jerry Norton's quick bid calculation technique for rehab cost estimation. He underscores the importance of padding estimates with a safety margin to accommodate unforeseen expenditures.
Methods to Estimate Renovation Costs
There's more than one way to skin a cat, and estimating renovation costs is no exception. While David began by cushioning his offers with lowball figures to account for potential rehab expenses, Ryan elaborates on Jerry Norton's strategy of leveraging Zestimate and Realtor.com to arrive at an offer price, sidestepping renovation costs. Norton's method boils down to averaging four property valuations and making an offer at 60% of that average.
Furthermore, Ryan introduces a detailed square footage-based approach to gauge rehab costs. He classifies required repairs into four categories: mild, moderate, extensive, and total overhaul. Each category carries a distinct price tag per square foot, ranging from $9 to $55, offering a handy tool for investors to swiftly assess potential expenses based on repair intensity.
Dissecting a Renovation Budget
For a practical understanding, Ryan and David delve into a representative renovation budget, encompassing diverse components like doors, windows, cabinets, countertops, flooring, and HVAC installations. Drawing from his own experiences, Ryan annotates each budget line item.
The duo also accentuates external variables like chosen material quality and property location. An overarching emphasis remains on the prudence of earmarking a profit buffer to hedge against unforeseen costs or project overruns.
Comparison of Estimation Techniques
The post further contrasts David's swift rehab calculator, which offers a high-level estimation approach, against Ryan's meticulous model that encompasses a broader spectrum of repairs using square footage as the foundation.
Both methodologies have their merits and can be customized based on individual predilections and requirements. The main takeaway? Implement a structured strategy for rehab cost estimation and always plan for surprise expenses.
Mastering renovation cost estimation stands as a pivotal competency for real estate investors. Whether you lean towards David's streamlined method or Ryan's exhaustive approach, the essence lies in adopting a method that resonates with your style and generates reasonably accurate estimates. Factor in repair intensity, locale nuances, and material caliber, and always carve out a margin for unforeseen overheads. Prioritize due diligence before locking in any deals.
We trust this article has armed you with the knowledge and belief to navigate rehab cost estimation. Stay tuned for more upcoming blogs!
About Benjy Nichols
Benjy has been a media specialist at DealMachine for the last 2.5 years. He produces, writes, shoots, and edits our media content for our member's DealMachine and Real Estate education.