I have bad news for you... nobody will learn the art of estimating repair costs by watching a 20-minute video. It's going to take some time, experience, and lots of practice before you will master the skill, but I will show you a way that you can roughly calculate repairs, which will help you greatly when calculating your purchase offer.
Even when I estimate the costs of a rehab project, it's never exact, and it doesn't have to be... Let me tell you why. Every Investor will rehab the property differently because they'll have different goals. While some might just put on a fresh coat of paint and clean the carpets because they want to rent the house out, others might want to completely gut the property and spend tens of thousands, making it a dream home so they can flip it for big profits.
As you get to know your Investor's investment strategies, you can estimate the costs for them more accurately. But for now, let's learn how to quickly and easily evaluate repairs, so you have the ability and confidence to come up with a ballpark number so you can make your offer and negotiate a great deal.
As I mentioned in the property walk-through lesson, it's essential to take photos (lots and lots of photos). I typically take in the neighborhood of 125 pictures, not only so I can show them to potential buyers but also so I can click back through them when I get back to my desk and calculate the repair costs.
Back when I was rehabbing houses, I used a digital camera to take my pictures with because we were still using flip phones for the most part. After I'd broken my third camera while juggling it and a clipboard simultaneously, I decided to try a new technique... I found it much easier to walk through a house with just my camera and a flashlight, taking pictures of everything along the way.
Starting outside, I'd take multiple photos of each side of the house, roof, driveway, garage, and yard. Once inside, I'd systematically take pictures of each room from different angles, including anything that needed to be repaired, replaced, or removed. After the walk-through from the comfort of my desk chair, I can quickly click through each picture, noting the work required, and come up with a rehab estimate that I'm comfortable with without the hassle of writing down everything while walking through the property.
The big question I faced when I started writing this section was how do I teach people how to estimate rehab costs if they've never done this type of work before... Unfortunately, the answer is there is no quick way to show you. I'd have to create an entirely different course to teach someone how to inspect a house and crunch all the numbers.
Additionally, it's not a necessity; you just need the skill to do a quick estimate and get close to the number because the Investor you assign the deal to will come up with their own repair budget anyway. After I'd had that realization I couldn't teach you everything about renovations in this course, I went to work coming up with a quick one-page checklist you could use to estimate the repair costs.
Disclaimer, This checklist is only to calculate a ballpark number. By no means is it meant to determine the exact repairs a house requires accurately.
Step One: What level of rehab does the house need?
Level 1: Even the nicest of properties need some work... A quick paint job to freshen the place up, carpet cleaning, and a good ole fashion scrubbing, so even for really great properties, you'll want to use a Lite Rehab number. Almost any real estate investor will spend money cleaning the place up, and if you tell them that "no" repairs are required, it will make you appear to have less knowledge of the real estate investing business... don't make this mistake.
Level 2: Most of the houses you wholesale will probably fall into this category because most of the "buy and hold" investors will do this type of rehab along with some of your "fix & flip" investors. This Standard Rehab will include painting throughout, flooring, fixtures, lite plumbing & painting, and typically some outside curb appeal work.
Level 3: The Full Rehab will usually be used for houses that have been "trashed" or by investors planning to do significant renovations to "fix & flip" the property for a nice profit. Use this level if the bathroom(s) and kitchen need to be completely updated and a "top to bottom" renovation of the property is required.
Step Two - Adding the High Ticket Items
In addition to selecting the level of rehab required for each property, you'll need to pay close attention to the "High Ticket Items" that an investor will have to include in their numbers. These items can quickly add up and significantly increase the budget of any renovation budget and include the following:
Step Three: Add Up Your Numbers
Once you've picked the level of rehab you've determined the house needs and identified the high-ticket items (if any) that need to be addressed, it's time to add up your numbers. Just work your way through the rehab repair estimate and fill in your numbers while reviewing the property pictures. When the worksheet is complete, you should have a reasonable estimate of the repairs you can use to help calculate your purchase offer.
Again I want to emphasize that this worksheet gives you a rough estimate to use when determining your offer and shouldn't be used to create a number for an actual rehab budget. Only time, practice, and experience will give you the knowledge to quote a renovation project accurately.
While I believe the numbers on the rehab checklist will give you a good "average" to calculate your costs, there are always exceptions. Many of the homes I wholesale are in low-income areas. If you're also working with houses that have low values, you might find you need to adjust the numbers down slightly.
The same holds true for those working with properties in higher-value areas. You might need to adjust your numbers a little higher to align better with your market prices. The bottom line is using the form as a rough guide and making it work for the area(s) you're working in, and I'm sure in no time, you'll be calculating rehab costs in your sleep!