Estimating Your Way Around Rehabs

Many of you have asked me how I estimate my rehabs. Any rehabber will tell you there is no way to get exact figures, but there are ways to get close. The following method is geared towards light to medium levels of rehab and not structural or gut rehabs.

If you plan on rehabbing for a living (a darn good living I might add), start practicing in your own home, condo, or apartment. Pretend that it is your subject property. Draw your bathroom, kitchen, living room, bedroom, etc. out on a piece of paper. Draw in the individual components for those rooms (toilet, bathtub, vanity, sink, etc.) and also measure the cabinets for those rooms.

You need to start asking yourself questions. In what area do you want to do rehabs? To what standard of living in that area does this rehab have to conform? How big are the average kitchens and bathrooms in the area you've chosen? Visiting “open houses” in the area you want to rehab in is your best source for finding this information out.

Though it's true that a good rehabber can rehab in any area, the level of “bling bling” in the finishing details is determined mainly by what the area can support and not entirely up to the rehabber. KNOW YOUR REHAB AREA! Don't jump from area to area unless you know that area.

Now that you know your area, adjust your own drawings if they differ on average from the houses on your open house tour to increase the accuracy of your estimates. Remember, the goal of this exercise is not to get exact costs of doing a rehab; it is for you to learn how to walk into a particular property and get a feel for what it might cost to do that rehab.

Next, let's go shopping! If you plan on being a rehabber, plan on shopping. In Chicago we have many choices - Home Depot®, Lowes®, Menards®, Ace® and lots of independent home improvement centers. Go to a store close to an area that you want to rehab in and start tracking costs, one room at a time, for each item you are buying (with your mind only) and at the level of “bling bling” needed for your rehab area. Buy flooring that would be right for your area for each of the different rooms and make note of that. Then look at what a door or an average size window for the property might cost, and add those to your list under miscellaneous. You are getting used to “buying with your mind.” This will help you as you walk through a possible rehab. You are developing your ability to have a vision for a property.

By the end of your “mental shopping spree,” you will have a total amount for each room in your drawing and you will have lost your mind from spending five hours in your local home improvement store and a ton on your next rehab! You will begin to have a feeling about what a bathroom, kitchen and other rooms in the next rehab candidate will cost to bring it up to neighborhood standards.

I suggest going “mental shopping” several times to add additional items, as well as using the same drawings with different levels of “bling bling”. This will allow you to be able to price a kitchen with high-end cabinets and appliances, middle of the road, or low-end and improve your ability to walk in to a property and have a good idea of costs.

Contractors and builders will often use software to estimate jobs. They are usually geared towards new construction. Most will give averages or ranges, sometimes based by area of the country for some of the products we discussed. QuickBooks Pro® allows you to use certain estimation software and import it into QuickBooks Pro® for job costing. Even software will have variances that contractors must stick to if they gave you an actual job cost. If they have been in business for a long time, they also make adjustments based on their well-developed feelings and relationships with their suppliers.

Use your own personal estimates and safely add 30 percent for labor to compare with contractors and subcontractors as a way to know if you are getting a fair price for proposed work. Have them separate labor from product costs. If there is a big difference, have them justify it. If they can't, move on to the next contractor. Continue to practice developing the “feeling” for estimating and you will also see your estimates get closer to those of professional contractors.

Don't think that the way to cut costs is to get the cheapest labor or “squeeze” every last dime out of your sub- contractors. Cut costs by becoming a good shopper. Always allow contractors to make fair labor costs for jobs and the quality of their work or your reputation is likely to suffer. Most important, next to the quality of workmanship, is your ability to build a quality team. Without it, rehabbing isn't going to be so much fun. With it, you will be able to breathe new life into what many others have tossed aside.

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Scott Rubin is an active investor and founder of 5 Star Property Solutions, Inc. and 5 Star Reconstruction, Inc. For more information, he can be reached at 847-579-4830 or visit him on the web at www.a5starProperty.com