Don’t Suck at Estimating Repairs

As a Wholesaler and an Investor, my pet peeve and the pet peeve of almost all cash buyers I talk to is when they get a lead from a Wholesaler and the “repair estimations” are WAY off!  You can probably relate.  If you are doing this, you are killing your reputation as a legitimate Wholesaler.  And your reputation is everything in this business. 

This can also apply to when you are co-wholesaling or joint venturing on another Wholesaler’s deal as well.  You don’t want to advertise or re-market a property when they are totally off on their repair estimate.  Because then you get a bad name because you took their word for it.  Time to get a bit more thorough and bit more professional guys (and gals).

An accurate repair estimate is critical in making decisions on real estate deals – especially Wholesale deals.  Of course smart investors are going to do their own due diligence anyway, but you don’t want to waste people’s time by claiming a house only needs $5K in work, when it really needs $15K in work.  It’s best to over-estimate repairs as opposed to under-estimating repairs when relaying that information to your buyers.

And YES – there are two types of repair estimates – the “Rent Ready” estimate – or the “Full Rehab to Retail Flip” estimate.  Because we are either selling to Landlords – who may only need to get the place “Rent Ready”.  Or we’re selling to Fix n Flippers – who need to get the place sparkling brand new so they can resell for top dollar.  If you know the place is just going to be a rental (for me that’s $60K and under ARV) – then you can probably get away with just knowing the “Rent Ready” estimate. 

“Rent Ready” – means it’s livable and marketable to renters.  Functioning kitchen, bathrooms, heating and AC, no roof leaks, windows open and close, electrical and plumbing work of course, decent landscaping, and CLEAN.  I’ll elaborate more in a minute.

“Full Retail Flip” Estimate – means brand new everything or close to it (under 10 years old).  So if a house hasn’t been updated in say 20 years (that’s only 1994) – it probably needs new everything.  New kitchen, bathrooms, roof, AC, flooring (carpet, tile, hardwood refinishing), paint, landscaping – maybe even moving walls around.

Sometimes there’s an in between as well.  Like the Hedge Funds that are buying for rentals, but they will practically rehab the house to “Full Retail Flip” extremes.  So you have to know who you are talking to when you are selling the properties.  And you can advertise like this:  “This house needs $10K in repair to get it rent ready, or $20K in repair to fix it up all the way for resale.”

So let’s quickly cover all of the things we need to consider when estimating our repairs (exterior 1^st):

• Roof – ask the age, check for leaks, check for discoloration, sagging roof
• Gutters
• Siding/Exterior paint
• Windows – do they work? Older (bad insulation); Screens?
• Landscaping
• Pool – functioning pumps/filters
• Fencing

Interior:

• Kitchen – need new cabinets, sink, appliances (oven, dishwasher), countertops, redesign?
• Bathrooms – need new sink, toilet, countertops, cabinets, tile, vanity?
• Flooring – keep or replace existing, new carpets usually, new tile in retail rehabs
• Sheetrock/Drywall – walls and ceilings
• Plumbing – is it old copper?  Any leaks?
• Electrical – update service panel (replace knob and tube to circuit breakers), new outlets
• Lighting
• Heating and AC Unit – usually best to update these

Miscellaneous – trash outs/clean outs cost money ($500 to $3000) for someone to come haul out junk that may be in the house or yard.

Other Factors – can you add a bedroom or bathroom?  Can you add square footage easily?  Convert a garage to another bed and bath?  Articulate the potential and factor in those costs.

Once you get good at factoring in and knowing ALL THE COSTS associated with a repair/rehab estimate, you will be better positioned when you are making your offers on property as well as presenting properties to your investors.  Be a PRO and get good at this.  Walk thru Home Depot and see what all of this stuff costs – and factor in the labor costs as well.

I have a “Repair Estimation Spreadsheet” that I got from a hedge fund if anybody wants to see it.  It will make you look a lot smarter in front of your sellers and your buyers.  Just shoot me an email if you are interested.  And of course go to www.HowToWholesaling.com for more helpful information on dominating your local market as a Wholesaler.