As you will see in the next section, the final repair price is the number that is going to be the greatest influence on your bottom line and cause you the most aggravation and frustration if you don’t get the number down right. Depending on the type of property, the condition it is in, and the amount of work that needs to be done, this cost may end up being bang-on your budget, or will be constantly fluctuating up and down as you decide on what things really don’t need to be done and the horrific surprises you may be forced to face.
Being able to effectively estimate the repairs of a property before you buy the property will go a long way in ensuring you get the maximum amount of profit from its sale or rental. Sometimes the repairs may only be cosmetic in which case you may be able to get things done cheap. On the other hand, if you have major structural repairs to do, the property may not be worth purchasing if you estimate the repairs can’t be done under a certain amount and therefore the project is not a worthwhile deal.
Remember that repairs themselves are an investment into the property. The repairs are supposed to improve upon the property so that a higher price can be commanded on the sale or rental. If the spread between the repair costs and sale price are not within your required range, it might be best to pass on it and look for something else.
Repairs are the one thing that can cause you to be into your property more financially than you want. Repairs are necessary to bring a property up to selling condition, but the more repairs you have to do, the more it’s going to cost, and this will directly reflect the amount of profit you will make when you sell it.
So it’s absolutely crucial that you know how to estimate your repairs and how to keep costs as low as possible. You need to become a repair expert so you can quickly see if a property needs more repairs put into it than what your time, money, and effort is worth. With time and experience you will be able to estimate repairs very accurately.
For example, if the house needs to be painted, and most do, you need to know how much this is going to cost you. Since you need to factor in the cost of the paint and the painting contractor, you find the cost of painting the interior of the house to be, just as an example, around $1.50 to $2.00 per square foot. If the house is 1.500 square feet, it will cost you around $2,200.
Some rehabbers like to use a “$20.00 per square foot, standard cosmetic” rule as a guideline A standard cosmetic rehab usually includes all new hard surface flooring and carpet; both interior and exterior painting; new baseboards, and electrical and plumbing fixtures; new kitchen and bathroom which includes granite, cabinets, and appliances; window treatments and blinds; doors and landscaping. So a quick estimate on the repair to a 1,500 square foot home would be around $30,000. That might seem a bit high, but budgeting with this formula allows for wiggle room once you get to see exactly what repairs are required and to prepare for surprises.
Of course you can always adjust the formula to account for properties in the area. Work with a $15.00 per square foot standard rule and you will only need $22,500. Of course the amount of the repair estimate using this formula will increase with the size of the property. So if you lower the repair dollar per square foot for a 2000 square foot home, you could be estimating around the same budget for a bigger place.
The condition of the house, whether it is on the lower-end or higher-end, and its size will all factor into the estimate. So will the actual repairs you end up doing, decide not to do, or surprise ones you are forced to do. For example, if the kitchen has already been newly refurbished then you can remove that from your rehab costs. And if all you have to really do is change out the carpet or other small items and repaint the interior you could do the whole thing for just $2,000 to $5,000. It really all depends on what the house needs in order to bring it up to After Repair Value (ARV). Over time you will develop more attuned skills of estimating these expenses and easily calculating the initial rehab costs and adjust them up or down as you go through the property.
There are many types of repairs, renovations, upgrades, and cosmetic improvements that can be done to a property. There is painting both the interior and the exterior of the home after cleaning off the old peeling paint if needed. You may replace the flooring and either clean or replace the carpeting. Then there are the lighting and plumbing fixtures. For example, brand new lights, faucets, and door handles may not seem like much, but they really can make a home look more appealing.
New appliances such as a refrigerator and stove, dishwasher and microwave, and washer and dryer really can improve the look of any home, even a lower-end one. The bathroom can be updated with a new sink, toilet, and those bathtub liners which can turn an old-looking bathtub/shower into something more eye-catching and modern.
Older homes will need new windows as the windows will look outdated if they are the originals. The same might be required for the doors depending on their age and shape. You may need to repair some drywall and upgrade the hot water heater and furnace. Toilet fill valves, leaky faucets, ceiling fans, cracked tiling, and old caulking, may all need to be repaired or improved.
Faulty light switches and electrical issues can also end up on your repair list. So can all those little things that may just crop up expectantly that you have to deal with such as getting bees nests removed, cleaning up waste from rodents or other creatures living on the property, damage hidden behind panels or under carpets, and many other tiny things that can add to the repair bill.