In this lesson we will learn the basics of Estimating Repair Costs for your Rehab Projects.
Estimating Methods
There are a few different methods for estimating construction costs for your rehab projects. Generally, there is a direct correlation between the amount of time you spend on an estimate and the accuracy of the estimate.
Lump Sum (quickest, least accurate)
Cost per Square Foot (quicker, less accurate)
Detailed Estimates by Scope / Room (slowest, most detailed, most accurate)
Lump Sum Method
Lump Sum Estimation is the process of estimating the entire project as a single 'Lump Sum' number. The Lump Sum method is typically used by experienced house flippers to quickly 'guesstimate' what the repair costs will be based upon their past project experience and cost history.
Experienced house flippers can intuitively predict the price range of how much repairs will cost by simply walking through a property or even looking at property photos online.
Lump Sum Example A flipper walks through a property and uses their best 'guesstimate' based upon past project experiences and says I think this property will need around $50k to $60k in repairs.
Warning Obviously, 'guesstimating' Lump Sum numbers can be a dangerous way to estimate if you don't have any project experience or cost history. Lump Sum numbers should only be used by flippers that have rehabbing experience or flippers that have a contractor's bid proposal.
Reality check
If you are a new flipper you should not be using the Lump Sum method to estimate rehab costs unless you have a Contractor's bid proposal!
Cost per SF Method
Cost per Square Foot estimation is a quick estimation technique that uses an estimated $/SF value and multiplies it by the property square footage that is being rehabbed. If a rehabber has experience estimating costs and rehabbing houses, they can reference their past projects & calculate an average $/SF that they can use to quickly calculate rehab costs for potential deals based upon the size of the property.
Top 5 Most FAQ
How Much Should I Budget per SF for a Rehab?
Unfortunately, the answer is it depends...
It depends on the Scope of Work, depends on the materials used, and depends on the location as well as many more other factors.
Estimating Rehab Costs using an arbitrary $ per SF value can be dangerous, especially if you don't know what Scope of Work is included.
Before you use a $ per SF amount for quickly estimating rehabs, you should really take the time to understand the Scope of Work that is included.
For this reason, we recorded a Case Study which takes a detailed dive into 3 different Scopes of Work to help you understand what repairs are included for a Light Cosmetic Rehab, a Heavy Rehab and Full Gut Rehab.
Cost per SF Case Study
Case Study Results
Below are the estimated results for our 3 different Scopes of Work from our Video Case Study:
Cosmetic Rehab (exterior & interior paint, new flooring, new fixtures) $10 to $20 per SF
Heavy Rehab (major exterior work, re-using existing floor plan, new kitchen, new bathrooms, finishes throughout) $35 to $50 per SF
Full Gut Rehab (major exterior work, interior structural changes, new MEP systems, new kitchen, bathrooms, finishes throughout) $50 to $80 per SF
TIP
Remember, although we provide some cost ranges for Light, Heavy & Full Gut Rehabs, it's always best to create your own Estimates and calculate your own $ per SF values that will work for your specific projects, materials and location.
Warning Similar to 'Lump Sum' estimation, estimating costs per SF can be dangerous if you don't fully understand the costs that are included in the $/ SF value. $/SF numbers can vary widely depending on several factors including:
Project scope of work (cosmetic rehab vs full gut)
Location of the project (rural midwest vs downtown Manhattan)
Materials used (builder grade vs luxury grade)
Contractors/type of labor used (handyman vs licensed GC)
Seasonality (slow Winter season vs peak Summer months)
For this reason, you should only use $/SF values if you have rehabbing experience and YOUR OWN PERSONAL cost history. To find YOUR OWN $/SF value, review your past rehab project costs, and calculate your average cost per SF that you can use to estimate future projects.
If you don't have any cost history, start by creating detailed Estimates for you rehabs, and then you can calculate the average $ per SF value for your projects.
Note: Our Estimating Dashboard automatically calculates your $/SF amount, so you can review your past project estimates and calculate Your $/SF Values.
Detailed Estimation Method
Detailed Estimates by Scope of Work or by Room involve a lot more time and due diligence, but it is generally the most accurate way to estimate repair costs.
Inspect the Property - With detailed estimation, you will first need to walk through the property to inspect the property's condition and evaluate what work needs to be completed. Walk around the property and take pictures of the exterior, kitchens, bathrooms, living areas and utility closet so you can use the photos for future reference.
Quantify the Repairs -While you are at the property, takes notes on the quantities of work of each repair so you can use those quantities to create your detailed estimate.
Pricing - Once your quantify the repairs, you will price each repair using local contractor pricing. Our Repair Estimator tool comes with a Starter Database that will provide National Average pricing. You will want to review this pricing and adjust the pricing to fit your market and specific project needs.
To fully explain the estimation process, we created a Case Study that takes a deep dive into the process of creating a Scope of Work and detailed estimates and share estimating tips and tricks to help you learn how to estimate costs more accurately for your rehab projects.
Creating a detailed estimate can be a difficult task if you don't have a system in place. You will need to build a spreadsheet or utilize a software that has a cost database to organize and streamline the estimating process.
Checkout our Flipper Force software which includes a Rehab Repair Cost Estimator tool w/ a database of over 30 Scopes of Work and over 500 common items and unit prices.
FAQ
Okay, But How Do I Learn How to Estimate Repairs Without Any Construction Experience?
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