Wholesaling 101 – Free Course: Basics of How to Wholesale Real Estate
Wholesaling 101 – Part 6 (How to Estimate Repairs on Projects)

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How To Estimate Repairs on Any Project, the Right Way!

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Written by Daniil Kleyman

 This is a LONG blog post. But it’ll be one of the most valuable things you’ll read if you can focus and pay attention, without getting distracted by something else!

As someone who has done countless full rehabs and new construction projects, I get asked this question by my email subscribers and software clients all the time. I wish there was some easy answer to this question I could give to people every time, or some easy magic button software (which others claim to have by the way) but unfortunately there isn’t a super easy answer, formula or magic button here.

Moreover, I find that this is a question almost always posed by complete novices. Because as you start to gain a little bit of experience in doing deals, you’ll never have to ask some person thousands of miles away for magic formulas or estimating software!  So I am going to help you right now to get to that point quickly if you follow my directions!  So let’s go:

First off, let’s again agree that there’s no substitute here for experience. I mean, yes, you can use some basic rules of thumb or some generic estimating software to get in the right ballpark if you’re going to wholesale a deal to someone else and that may be good enough. As a matter of fact, later in this post, I’ll show you how to set up some basic rules of thumb.   Understand this though, if you’re wholesaling:  Most of your experienced cash buyers won’t rely on your estimate anyway and will create their own before pulling the trigger on a deal.

But if you’re going to rehab properties yourself, you MUST MUST ABSOLUTELY MUST understand your own market, what kind of finishes are needed in that market to rehab a property into a rental-ready state or to rehab a property into a retail-ready state, what your local contractors charge to do the work and which different suppliers you can go to for optimal pricing.

There are no no easy “one fits” all national methods or costs here that you can learn or plug in because of massive variations in pricing due to:

  1. Desired finishes
  2. Time of year/seasonality/cost of gas
  3. Prices of materials constantly go up – most suppliers have automatic prices increases every quarter or every 6 months of a few %
  4. Quality of your supplier relationships and your buying power
  5. Quality of your GCs and subs. Lots of variability in pricing there

So, here’s how you MASSIVELY shortcut your learning curve. Follow these steps:

  1. Take a good local general contractor through the property and get them to put together a detailed scope of work and rehab bid. As you walk the property, ask them lots of questions.  Take the opportunity to learn and soak up as much as you can from them as you walk the property.
  2. The way you get a contractor there is by being straight up and telling them you’re going to buy this property and are looking for someone to do the work. Don’t tell them you’re looking to put an estimate together so you can wholesale the deal or anything like that.
  3. Even if you end up wholesaling the deal, you can refer this contractor to your cash buyer!
  4. Tell the GC you want them to itemize the quote they give you as much as possible. Couple of rules of thumb:
    • All trades must be itemized separately: electric, plumbing, heating/cooling
    • Break out other parts of the estimate by category: masonry, siding, framing, roofing, windows/doors, flooring, insulation, sheetrock, painting, kitchens, baths, etc.
    • Preferably break out labor and materials separately. Note: Not all GCs will want to go to this level of detail or expose where they have the most margin built in, so be prepared for that!
    • Now that you have your first detailed estimate from a General Contractor, you can take that and create what’s called a Scope of Work to give to the next contractor.
    • You will often hear advice that you should get at least 3 different quotes, but the mistake most people make is they go and get 3 different quotes at the same time. What you may end up with in that case are 3 completely different sets of quotes.  One will include roof but won’t include siding and landscaping, 2nd will include some parts that first one did but not others.  So you’re not comparing apples to apples.
    • Instead, get one good contractor to walk through and put together a full list of work needed. Make sure it’s comprehensive.  Ask questions about why something is needed.  Once you get the bid back, go through and get clarifications on any terms or items that don’t make sense.  Use this to LEARN and soak up as much as you can.
    • Now that you have that full list, create a detailed Scope of Work from that and give it to the next 2 contractors.
    • This will achieve 2 things for you:
      • You will end up with 3 contractor bids that are similar in terms of work to be done so you’ll be comparing apples to apples
      • When you hand that Scope of Work to Contractor 2 and 3, you will already look like you know what you’re talking about vs. when you dealt with the 1st contractor because you’ll use the knowledge you gained from him to deal with the 2nd and 3rd
    • Now, this is where things get fun. Once you have these 3 quotes back, preferably itemized and broken out, you can compare the 3 and hopefully find some commonalities of pricing.   You’ll see that, for example, to refinish hardwood floors, it’ll cost on average $2/sq ft or to fully repaint the house, it’ll cost $1.5/ft in labor.
    • Taking that info, you can easily create a template for yourself in a spreadsheet or a software like Rehab Valuator, so that next time you go into a job site and see that floors need to be refinished, you simply plug in a square footage and your rate is already populated, so that it spits out a budget price.
    • If you just go through this exercise one time as I described just now, start to finish, you will be able to at least somewhat competently ballpark repairs in your market going forward, by walking through a property and plugging in all the itemized repairs that need to be done.

This is a Budget and Scope of Work Template inside Rehab Valuator Premium.  You can create this template once for your deals, and then use the “Clone” function for every deal thereafter!

  • Budget Template from Rehab Valuator Premium Software

    Budget Template from Rehab Valuator Premium Software

CREATING QUICK RULES OF THUMB:

  • The exercise I just described above will massively help you learn, which is crucial when it comes to rehabbing your own projects. When it comes to wholesaling, you need to at least be able to ballpark repairs.  As I said previously, most of your experienced cash buyers will NEVER rely on your exact repair estimates and will make their own assumptions.  So I would not go through the trouble of putting together detailed rehab estimates for your cash buyers.
  • Instead, you need to just be able to ballpark repairs in order to:
    • 1) Make the right offer on a property to make sure you don’t overpay
    • 2) Represent the condition of the property and potential profits credibly to your buyers
  • So in order to do that, you need to set up some basic “ballparking” rules of thumb. For example, in my market I know that:
    • Total gut rehab with both exterior and interior work will run me on average $60/ft for a rental and $70-$75/ft for a nice retail flip
    • Total gut rehab with only interior work will run $40/ft for a rental and $50-$55/ft for a nice retail flip
    • Cosmetic rehab for a rental will run around $20/ft (baths, kitchens, flooring, etc)
    • If I look at a property older than 40 years and it hasn’t been updated in decades, it’s a definite gut job (have to tear everything down to the studs)
    • Etc etc
  • Setting up these “rules of thumb” will massively speed up your deal evaluation process, while preventing you from making costly mistakes.
  • Go through this exercise one time and you will make massive progress in your ability to estimate repairs and value deals!

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Helpful Resources for you to check out:

[SOFTWARE]  Free version of Rehab Valuator – every wholesaler must at least have this!  Get FREE Account!

[SOFTWARE] Rehab Valuator Premium – if you want to create wholesale marketing flyers and presentations for your deals, this is a MUST!  

[VIDEO] How to Sell Your Wholesale Deals!

<== Go Back to Article 5       Go to Article 7 (Coming Soon) ===>

Comments (42 comments so far)

  1. Great quick value add, Daniil! Thank you


    • Daniil

      You’re welcome, Joe!


  2. Steve English

    Daniil has provided an excellent summary of the process for making deals work and still allow you to get some sleep at night. Note the difference when expected end use of property is rental vs sale. As you do more, you will gain a database of square foot costs for similar properties and will be able to quickly evaluate and price deals.


    • Daniil

      Thanks, Steve – always good to hear from you

  3. Blog is very concise, but to the meat of the issue, Daniil. I have the Premium Rehab-valuator & use it for honing my offer prices and to present most of my deals to my lenders.


    • Daniil

      Nice! Glad to hear it, Terry!


  4. Cora Brown-Campbell

    valuable info


  5. John

    Hi. Is that a linear ft or a sq. ft.


    • JacobC

      Hi John,

      Generally speaking you’re going by the price per sq. ft.


  6. Jorge Popolano

    Excellent Guide lines. And the idea of doing scope of work is simple but essential.


    • Daniil

      Thanks, Jorge! I agree 🙂

  7. This was AWESOME information. I appreciate you sharing your knowledge. This type of information can catapult folks from the cradle and provide solid footing. Yes, we may still be in the baby stages but at least we are out of the crib and on track to go beyond where we presently stand.

    Just like you, I am going to make great contributions helping others. And that can only be done by providing substance that has value.

    Thank you ~


    • Daniil

      Right on, John. We all start somewhere. It’s all about taking new, consistent steps forward every day and continuing to learn!


  8. Jay Smalling

    Great explanation of how to create a rehab budget using the knowledge of professional contractors. Looking forward to using this method in the very near future. Thanks so much for all your help Daniil!!!

    Jay Smalling
    Cobblestone Home Buyers


  9. Astrid van Boom

    Hi Daniil

    I posted a question the day before and received a reply from your team within a few hours. Great stuff!!!
    Really appreciate your blogs. Seem to get some direction at long last. Even got 2 cash buyers willing to deal with me!!!!! Now to get the the deals.
    I am a virtual wholesaler and would like to know how to find a reliable GC to give me an estimate on repair costs.
    Been using $10/sqft for minor, $20/sqft for minor and more, and $30,00 for major repairs, which would include the first 2(as per other experts). Calculating repair cost by looking at pics and following these guidelines.
    Is it worth looking at properties that is ready to move in, to wholesale?

    Thanks


    • Daniil

      Astrid – $10/ft and $20/ft may be ok but major repairs may run much more than $30k. That’s one of the biggest mistakes I see wholesalers make: underestimating full rehabs by a lot! In my area full gut rehab will run $50-$60/ft for a basic rehab and may run more depending on how much exterior work needs to be done.

      As for wholesaling ready to move in properties, you sure can, as long as you get a good discount to market value on them and the deal is worth buying!


  10. Marian

    Great content, Daniil! Thanks for making it concise and realistic. Very helpful in filtering leads and determining bottom line – what to offer, quickly.


  11. Benson

    Thanks for sharing a clear and understandable knowledge on ARV and Comps. Great job.


  12. Lloyd

    I’m always learning something new from you Daniil, and I seriously appreciate it make me one step closer to my Goal. Thank You, very must Daiil
    Will you sent me the Website to Deal Genie


  13. Steve M.

    Danill Great Content as always .. In My Market in Florida. I use The Basic Rule of $5 per Sq ft for Just cosmetic’s Lipstick so to speak. $15 Per Sq ft for prehab to get Rent ready. $25 Per Sq ft for total Rehab. My Numbers always come very close within $100 -$300
    If you have the knowledge of your materials price list it will help you come close with your Estimate as well.

    EXAMPLE : 1000 Sq ft House cosmetics/lipstick $5 Per sq ft : $5 x 1000 = $5,000
    1000 sq ft House Prehab (Rent Ready)$15 Per Sq ft $15 x 1000 = $15,000
    1000 Sq ft House total Rehab $25 Per Sq ft $25 x 1000 = $25,000

    CRUSH IT….!!


    • Daniil

      Steve – $25/ft for total rehab? Like a gut rehab? That sounds low to me. If you can get it done for that price, you need to come work on my projects! 🙂


  14. John Richards

    Be cautious when consulting with handymen or unlicensed “contractors.”
    Also, using costs submitted by licensed contractors that are unfamiliar with the local building codes or governmental agency permit requirements can become problematic in a non-appreciating real estate market.


  15. John Richards

    Daniil:
    In what regional market are your estimated square foot costs reliable?
    San Francisco?
    Waco, Texas?
    Do you have any conversation factors we can use for varying locations?


    • Daniil

      John – i am in Richmond, VA. I think my numbers work for most similar 2nd or 3rd tier markets


  16. Rajohn Dock

    hi you mentioned houses over 40 years old are a complete gut job im negotiating a 1958 built ranch 3bdrm 1bth is this a rule of thumb to consider with this property and what type cost could a total gut incur Thanks in advance


    • JacobC

      Hi Rajohn,

      It really just depends on the property, where you live, and the finishes you want to use in the house. Most homes that are that old have had some remodeling done already if they’ve been occupied. When Daniil mentions a complete gut job he is mostly referring to properties that have been abandoned or unoccupied for a long time. They usually require new electrical, plumbing, roof, floor repair, windows, etc. The costs for these things can vary greatly. In Richmond, for a rental property, you could estimate about $50 to $60 per sq. ft. for a complete gut.


  17. Vincent

    Do I leave the estimates of the first contractor, so the 2nd and 3rd can see?


    • Daniil

      No – absolutely not. I would not do that


  18. William J Wagner

    This is valuable information for a brand new investor just like me,I appreciate it so much, thanks.


    • JacobC

      Welcome!

  19. That’s perfect. I like the cosmetic rehab, kitchens, baths, flooring, $20/sq ft for a rental. Very insightful. Another great lesson. Thank you

  20. D.

    Again, you have educated me and I am thankful. happy to give the rules of thumb suggestion a try.

    Keep sharing it is needed.


  21. Felicia Richardson

    Thank you. This information was right to the point, clear and very useful. I will apply these steps for repair estimates. It let me know that I was on the right track.


  22. Henry Foldberg

    Danii,
    Your article on rehabbing projects is very helpful and well written. Mistakes on estimates for rehabbing can cost you a lot of money.Thanks for your help.


    • StefanieK

      Thanks Henry!


  23. Richard Thomas

    I enjoy this. I agree that there is no canned program that will work in all markets and at all time of the year. Hard work and learning is a must.
    One thing, you may want to compensate the first contractor for his or her time.


  24. James Okhueleigbe

    Daniil, this is a great explanation on how to estimate repairs using your template scope of work and budget. I will learn with this. My question now is if I have to buy a property in another state and I do not live there, how can I estimate the repairs? Can I just use assumptions that will work?


    • StefanieK

      Hi James,
      The best way to get accurate repair estimates is to physically look at each property. Being long distance can make this more challenging, but not impossible. Find someone you can build a good relationship with who can walk the properties for you. A good contractor who knows the area would be an ideal partner in this.

  25. Great info, Thank you!


    • StefanieK

      Hi Randy, great to hear from you. Thank you.

  26. Great article…it’s exactly what we did and now we can get use sqft to confirm our numbers;)

  27. Great post….this is exactly what we did to get to where we are today. It also is a great second check too!