It’s important to accumulate knowledge in various aspects of the fix and flip process. Lack of knowledge will teach you valuable, but often expensive lessons.
Gaining knowledge and experience in the following six topics should be a top priority.
- Knowing real estate values and health of your target market
- Knowing how to find good deals
- Knowing how to quickly estimate repairs
- Knowing how to negotiate with a seller
- Knowing how to manage the rehab project / contractor
- Knowing how to finance your deals.
In this article we will discuss topic #3, Knowing how to quickly estimate repairs.
Knowing how to quickly estimate repairs:
For most real estate investors, it takes a lot of offers to win a few good deals. When I was flipping houses, it typically took me 15 offers to get one accepted at a price I was willing to pay. You need to be able to come up with your maximum allowable offer (MAO) quickly. Ideally, you should be able to meet with the property owner, walkthrough it with them and make an offer on the spot. That’s how you win great deals and eliminate the competition.
The first variable is the After Repaired Value (ARV) that was discussed in the first blog in this series “Advice for Those Thinking about Buying Their First Fix-and-Flip. The second variable is your repair estimate. With those two numbers you can quickly calculate MOA and make your offer.
To consistently generate an accurate repair estimate, you need 3 things.
- A system to methodically walk through a property and identify / document
the repairs that are needed
- Knowledge of material costs
- Knowledge or repair costs.
System to document repairs needed: This is the most important step and the easiest to accomplish. You need to create or buy a system for inspecting a property. I used a property inspection sheet from a training class I attended, to consistently analyze each property and make sure I wasn’t overlooking anything. It included items such as roof, flooring, exterior paint, interior paint, HVAC, kitchen, baths, rotten wood, electrical, windows, garage, basement, foundation, and junky neighbors. I would use this sheet and my ever-growing knowledge of repair and material costs to come up with a number.
Knowledge of material costs: This comes with experience and taking the time to price the most common items, and making simplifying assumptions. For example, kitchen cabinets and counter tops can me stated in $ per linear foot of cabinet run. Flooring can be assumed in $ / sq feet. Painting and roofing can also be simplified by the dimensions of the project. Having these standard figures based on the expected retail price of the property allows you to simplify the estimation process. Going through Home Depot or Lowes with your repair list and pricing the materials is a good learning exercise. In times of inflation, your numbers need to be updated constantly.
Knowledge of Labor costs: Labor costs can be blended into your material assumptions or kept separate depending on your preference. When I was starting out, I had a contractor that would give me numbers until I knew what approximate costs were for each component or repair.
You need to include a contingency factor in your estimate for items you may have missed or did not have an accurate estimate on. As your experience increases, this factor should go down and allow you to be more aggressive with your offers.
How to gain this knowledge:
Some local sources of training on how to estimate repairs include:
- Bill Hook (local real estate guru and trainer): https://www.facebook.com/HookedUpBillHook/
- ACRE of Pittsburgh (Active Community of Real Estate Entrepreneurs) https://www.acrepgh.org/
- ACRE of Beaver County http://www.acrebeaver.org/
Future issues of this blog will talk about the other 3 areas of knowledge including my favorite, how to finance your deals.
If you would like to get preapproved for a loan and one or more proof of funds letters, please follow this link. https://www.hardmoneypgh.com/loan-request/
Please contact me if you would like to discuss a project by clicking here: https://g.page/r/CTcMtkHdqQHYEBA