If you read my last post, you saw my wholesaling equation: Your offer = 65% of the ARV – Repairs – Your desired profit. While this is great in theory, you are probably wondering how you are supposed to know how to figure out how much repairs cost. I wish we all came from a background in construction but that’s not the case! For instance I have spent most of my working days in call centers with a slight detour to teach guitar lessons and serve frozen custard. Nothing I had done could prepare me for knowing how much a kitchen costs, estimating a roof replacement, or replacing a dozen double pane windows. The trick with being an investor is knowing who to call for what.
Should I do the work myself?
You will have to answer this question for yourself. While some people love sweat equity, I love and value having free time. I did not get into real estate investing to work harder. I got into this business because I don’t want to have to work 50+ hours a week. One of the biggest mistakes new investors make is not paying themselves for their time. Your time is precious, and you can’t get more of it. If you must do the work yourself, make sure you pay yourself for it.
Should I hire a professional? How do I know who to call?
When you are looking for contractors, the first place I would look is real estate clubs. There are dozens of these groups across multiple cities. A simple Google search should bring up several for you. Go to a meeting and network. In this industry it’s not what you can do, it’s who you know. Ask the people you meet if they have any recommendations/referrals for a contractor, realtor, banker, etc. I will post some of my personal recommendations under a referral tab at the top of the blog.
When talking to contractors, you are looking for people who work with investors. These guys will do great work, in a timely manner, at a price below retail. They will give you a great deal so you use them again. You shouldn’t be paying $10,000 for a basic kitchen remodel.
Attached below is a very conservative rehab estimate spread sheet. Feel free to print and use it. It has been developed in conjunction with several contractors. The #’s you will get are safe and reliable. Keep in mind that as with any estimate or bid you can’t account for the unknown. It is always advisable to leave some wiggle room (around $5,000 depending on the project) in your budget.
***Disclaimer: the below rehab cost calculator has a margin of error between 15-20%***
When using this sheet, all estimates should be verified by a licensed contractor and inspector before purchasing a home. The sheet below is to be used for your own calculations and not to be shown to sellers. Things like windows, doors, paint, are counted on a room/unit basis. While things like kitchen, plumbing, curb appeal, bath, etc. are done on a conditional basis. For instance 1 on bath doesn’t equal a bathroom remodel. It’s more of an update/repair. While 1.5-2 is more the cost to redo a traditional bathroom in my area. If you have questions or suggestions let me know. I can also email it in other formats if need be. The “frequency discount” is simply a way to account for the margin of error this calculator causes. You can print it off in PDF format for a nice professional look. If you have a tablet with a PDF editor you can fill it out as you walk through a property.
“Remember as a wholesaler you don’t have to count the nails.” -Jerry Puckett
Rehab costs fluctuate per locale. I highly recommend walking a local contractor through the spreadsheet and having them tweak the numbers. They will be able to get some things done cheaper while other things may cost more.