This week, we’re going to talk quoting rehab. When you go check out a house for the first time, you will need to do a quick walkthrough rehab estimate. In my case, when I get a house on my radar and go check it out, I spend ten minutes in the house at most and add up rough estimates of the numbers in my head–it’s not scientific, but it gives me a ballpark of what the rehab would cost. I’ve done this for many years, so my quick estimates are generally pretty spot on. I want to explain to you how I do this.
So why do I do these walkthroughs? Some people will say that bringing one or even a few contractors is more precise. But looking at a property as an investor before a contractor steps in is more of an art than a science. You have to rely on experience, the knowledge you’ve gathered over the years, and even a gut feeling.
The walkthrough estimate is really to get you in the ballpark so that you know if the property is good enough to bid on and if it’s worth it. When I do this, I tend to be conservative–I don’t try to bring the number down when I estimate the rehab by myself. If you start bringing it down at that point, you’re going to end up underbidding or not making as big a profit as you expected. I always round up my numbers to the nearest hundred or even five hundred. I always build in a buffer, so that when I bring my contractor in I know that I should be at the number I came up with or less.
I am not a builder and don’t know how to do any of the work myself, but I’m good at knowing how much something should cost and how long it should take. Usually, once I go through and do my walkthrough, I throw in a couple thousand dollars for electric and plumbing. Even if the electric and plumbing look fine to my untrained eye, I still throw in two or three thousand dollars, because I know that issues generally come up.
The philosophy behind this is to get a rough, conservative estimate so that you know whether a property could be profitable. It’s a step before bringing a contractor in, and somebody should be doing it. If it’s not you, it should be somebody that you’ve trained.
For the rest of the week, we’ll keep going through my approach to a walkthrough rehab estimate. Tomorrow, I will talk about making estimates on the exterior of a house.