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How to Estimate Rehab Costs

A Brief overview of the Book on Estimating Rehab Costs by J Scott

One of the best books I have read on estimating rehab costs is the one written by J Scott and put out by BiggerPockets publishing. In this book J breaks down the process of estimating any fixer upper or flip rehab costs. Instead of relying on vague estimations by square footage or estimations by rooms costs, he advocates a much more granular approach where he breaks downs rehab costs into into 25 components. They are:

Exterior Components

1.Roof 2. Gutters 3.Siding 4.Exterior painting 5.Decks/Porches 6.Concrete 7.Garage 8.Landscaping 9.Septic System 10.Foundation

Interior Components

11.Demo 12. Plumbing 13. Electrical 14.HVAC 15. Framing 16. Insulation 17. Sheetrock 18. Carpentry 19. Interior Painting 20. Cabinets/Countertops 21. Flooring

General Components

22. Permits 23. Mold 24 Termites 25. Miscellaneous

Scott recommends proceeding with the estimates one component at a time and then compiling them into one Scope of Work (SOW) estimate for the total renovation tasks need to comprise the renovation budget estimate.

Scott briefly talks about six major factors that are going to impact rehab costs. They are

1. Location – where the projects are located will have a major influence on the price you will pay for labor and materials. In general the coastal regions are much more expensive than the south and midwest.
2. Contractors – different contractors will charge different prices based on their level of experience and expertise, and whether they carry licenses and insurances.
3. Level of Finish – vinyl floors or hardwood? Formica countertops or granite? White appliances or stainless steel? Once again the level of finishes are a major factor in the eventual rehab costs.
4. Specifics of House – a 100 year old Victorian will be a much bigger project than a home built within the last 20 years relatively up to date with modern codes and standards, especially if the older home has lead or asbestos issues.
5. Time of year -labor prices tend to drop in upstate New York in the dead of winter.
6. Building Codes – Building codes will vary by area often due to differences in climate, severe weather risks, soil types, geologic threats, and a host of other cirrcumstances that require buildings to be constructed in a way that is both safe and comfortable to the inhabitants.

Scott then spends a detailed section on each of the 25 components, explaining what to look for in an initial walk through inspection when evaluating each component, what the life expectancy is of that particular component, and what the range of prices may be when considering a repair or replacement of that component. Scott also talks about the best way to determine local prices for each job task, and the best way to pay for each task and the industry standards.

In the last section of his book Scott puts it all together in a single table.

This book is a well written and concise (Less than 200 pages) starting point for any beginner investor trying to understand how to put together a detailed scope of work and renovation budget for any project.