Copyright 2008 Profitable Partnerships USA, LLC
Pricing and estimating your renovation project is something that you will get very good at in time with practice. When you start out, it is a bit tricky to understand the various prices that will be associated with the various types of fix-up you will complete on the property.
To start and be comfortable we suggest that as you walk through properties, enlist the help of a good contractor. Have them walk the property with you to get a solid, firm quote on the price of repairs that will be needed for the house.
When you do this, it is important to not waste the contractor’s time. Make sure to pay them for the hour or two they will spend with you at the property. A good contractor who wants to earn your business will do this with you because they know that as you get into the business you will use them for your contracting needs.
We encourage you to engage this same contractor on your first few visits to get a comfort level with what things will cost for you to renovate. The more you walk through properties with these contractors, the more comfortable you will become at identifying the various costs of repairs.
As you walk through properties to assess the extent of the renovation, it is very important to write down what you see. Take notes and take photographs to remember what things looked like and the extent of the repair. For each property keep a separate file with these notes and photos.
As you take your notes and photographs of the condition of the property, also make sure to complete the Property Renovation Worksheet from the appendix. This worksheet will give you a good estimate as to the amount of money needed to renovate the property. This renovation worksheet will also prove to be useful in the way you price your property in negotiations with your sellers.
The Property Renovation Worksheet breaks down the various areas of the property, and then line itemizes the details of each area. As you walk through the property during your inspection, you simply note the kind of work that is needed in each area and then at the end of your walk through tally it all up to give you your cost estimate for the repairs.
To assist you in the line items of what things costs, we have also included our material cost matrix to refer to (see Repair Cost Matrix in the appendix). With this and your experience walking through job sites with contractors, you will get comfortable at pricing out your renovation projects.
Practice with these tools. Use them each and every time you walk through a property. As you do this, take particular note and pay close attention to what work is needed. Formally calculate out on your spec sheet how much it will cost. Vet this calculation with your contractor to make sure you are in line with what things really should cost.
Early on, it is also a good idea to contact or visit your local home improvement store. Lowes, Home Depot and some of the other larger home improvement stores conduct classes on renovations and have handbooks available for you to reference in order to have a good feel for what things cost to replace or renovate.
Utilize these resources and read the manuals they provide in their stores. These types of resources also help give you good ideas on how you can renovate your properties and also show you some effective hands on “how to’s”. We suggest you take full advantage of these free resources.
While you are attending these classes, or referencing the information such stores provide, spend some time pricing out cabinets, countertops, appliances, toilets, fixtures and bathtubs. All of these things are important to know.
Equally important is the look and quality of the materials. You want to be comfortable knowing what certain types of cabinets and countertops, floors, appliances, windows, and doors all look like. This will help you so that as you walk through properties you can envision what the property needs to look like and what it will cost to get it to that point.
In addition to our checklists and materials on renovation costs and visiting local home improvement stores and accessing their resources, it is also a good idea to spend time with local experienced renovators. There are people at your local REIA clubs who do a lot of renovations. They will help you refine your knowledge of what local materials cost and what renovation projects local to your marketplace should look like.
Ask if you can come along with them one day on the job. Offer to take them to lunch or dinner so you can pick their brain about the various renovations they have done and what suggestions they have in renovating properties. Make your time together worth their while and not an interference with their schedule. Offer to do some work for them on an ad hoc basis. See if they will allow you to visit their jobsites so you can see what things look like in progression and what things end up costing to be completed. See the work they do and examine the different renovation budgets they go through.
This real-life in-the-trenches on-the-ground experience of seeing it firsthand will help you absorb what is needed to be known about renovations faster and sooner than people who will learn merely through course materials.
For people who are starting out in the business, practice everything we have talked about. Walk through renovation projects of other investors and estimate what it is costing them to do the work. Practice with your spec sheet (in the appendix) and get comfortable and confident in estimating costs.
When you are done practicing, practice some more. Practice to a point where you can walk through a property without your spec sheet and know what it would cost to renovate the property.
In addition to pricing, it is also important to understand the timing as you budget out your renovation project.
Some projects will take longer than others. Depending on the area of the property and level of renovation, you have to factor in how much it will cost to fix the property and how much it will cost to carry the property while you do the work needed and necessary on the house.
The more renovation projects you do, the more comfortable you will become with the speed of your construction team. You will become familiar with the various timelines that are needed to complete different sized renovations.
As you become more experienced, you must factor in how long a simple bathroom, carpet and paint update might take versus a full-gut renovation where you install all new electrical, plumbing and HVAC, insulate, drywall and finish a property. Those two projects require a very different renovation project in the way of dollars. They also require a very different renovation budget in terms of timing.
It is important to get the experience to understand how long the project will take you so you can properly plan your holding costs calculation and what your potential profit will be once the house is sold.
You will also become more seasoned in the level of materials that will be put into the property and you will be able to quickly identify based on a particular type of house, not only the timing the renovation will take, but also the grade of materials, and thus the cost that will need to go into it.
An important factor to understanding estimating the renovation project and timing is how this falls in line on the calendar year or seasonality of the real estate market.
If you buy a property in the later part of the year, in October or November, which is a full renovation or “gut job,” you know it will take you three to four months to complete that project. That puts you in the early winter months of the following year. They are statistically the worst months during which to try to sell a property. Therefore, you must consider in your structuring of your deal, how long it is going to take you to sell your property. This is going to weigh heavily into the costs affecting your bottom line that are discussed a bit later in the course.
Understand the budget and timing involved with your renovation project. You may decide it isn’t in your best interest to renovate that property, but to wholesale it or flip it to another investor to make quicker and easier cash. We will also talk about this in a later part of the course.
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Tom Zeeb and Will Lansing are active real estate investors, national speakers and mentors who coach students how to make BIG profits so they can live the lives of their dreams. They are the authors of the highly acclaimed home-study course the “Profitable Partnerships Success Library”. For information on having Tom & Will speak to your real estate group or for home study course and other Profitable Partnerships product information, please visit www.profitable-partnerships.com email mentor@profitable-partnerships.com or call 877-COACH-50.
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