My First Offer-- Need Help With Estimates...
I am about to put my first offer in on an investment property and I'm having a little anxiety on the amount it will take to rehab the property. The FMV after rehab should be around 90-95k and its a bank owned property that is being offered for 65k. Its a 3/2 about 1600 sq ft and I would say the whole house needs new floors, new doors, interior paint, sheetrock patches in the wall and the bathroom and kitchen need to be updated. I know this is very general information but I'm really just trying to get an estimate on how much this might cost to repair... Any advice would be much appreciated.
Thanks,
neutral
A rough guess would be more than $5000 and less than $7500 depending on exterior condition. Just take each item and cost it out. Carpet at so much per yard times the # of yards ect. You can get one bid from a GC or get painters, carpenters etc to give you bids on each item and save at least 25% to 30 %. If you plan on doing some of the work yourself be sure ti include an hourly rate too for you. I have made this mistake before and discovered I underbid the job when I had to hire help to finish when i broke my leg.
Good LUCK and Thank You
Hope this helps some
Ted Jr
The exterior and roof look really good, besides basic landscaping and cleaning the yard. As for the interior, I was estimating almost double that, but again this is the 1st house I have ever walked through. I have only been looking into REI for about 2 months now and I figured the best way to learn is to actually go through the process. Even if I only make a few thousand dollars in profit I think the learning experience will be great. Thanks for the advice.
Contact local contractors to get accurate numbers.....estimates are often free.
Unless someone responds from within your local area the numbers you get from here may be way off.
Prices can be quite different just within 20 miles of certain locations.........
Here are some numbers I would use,
new floors $2 a sq foot for carpet = $3200(that includes labor)
new doors - $80 a door double that if you have someone install them.
interior paint $200, if you do it yourself- just paint and rollers and burshes, $1000-$2000 to hire it out.
sheetrock patches in the wall - maybe $100 if you do it yourself - who knows if you hire somebody, depends on the holes and amount, maybe the painters would patch them as part of the paint price.
and the bathroom and kitchen need to be updated. - here is where the money comes in. Updating is a very vague term figure $500- $6000 depends on what you are doing, replacing, just fixing up, ect.
For how you describe this, this is a good deal, especially if you can work yourself there as well.
My husband calculates rehabs like this and usually (well, only 3 times so far) its accurate - a bit more then in reality.
All prices include labor help (he does many things himself).
Complete room redoing (floors, walls, fixtures, cellings, painting) - 1200.
Complete bathroom remodeling - 1500.
So far, in your house, we would have 3X1200+2x1500=6600. I would think kitchen and other rooms can bring it up to 10000 (top).
And roof you said is OK?
If you are able to sell it for 95, this is good turn-around. even if you have to spend 3-4 months on remodeling. Plus, for this time prices will come up anyway.
You need to drive and ask around for good places to buy materials, Home Depot in our area sells tiles for 1.49 for bathrom (as na example). In Miami in the tile warehouse the same tile is .69-.79 cents. Also if you go to the development area where new houses are built (they always come with kitchen installed), you can find out where they send left-over cabinets, it should be some store not that far away. We found a few in our are and you save huge there. The same with bath appliences, etc...
When you caclulate everything, dont forget about closing costs.
Again, it is depends, what matters to you. Our goal for now is to make 25-30K per house and have 4 houses per year fixed/sold. It will not defenetly bring 1Million very fast, but everything depends on the situation.
Yulia
The margins look a little tight for my comfort. You say FMV is 90-95K but how long are houses sitting on the market at that price? I try to factor in about 2-5% below FMV (whether giving a realtor a greater % of commission or reducing the asking price) so that it sells quickly. Factor in your P&I payments for every month that it could sit empty.
If you do go forward with this one why not advertise it this way. Put a sign up in the front yard saying, "HOUSE FOR SALE--pick your updated features at no additional cost" Allow the contracted buyer to chose the colors, appliances (within reason), etc.... I've heard others have good success with this approach.
Good Luck,
Q
Thanks for all the input. I put the offer in starting at 54k and the seller countered it to 59k. I have decided I will not pay more than 57k. This is how I calculated the profit:
ARV= $90k
Rehab = -15k
6months holding = -3k
closing cost = -2k
6%commission = 5.4k
Profit= 7k.
Since this is my 1st project I have highballed some of costs for now. I know that anything cheaper than 15k in rehab will just give me more profit. Also, after further research I determined that FMV is probably closer to 100k depending on market length, but I still used 90k for my calculations just to try and show the worst case scenario. I understand this deal is propbably not worth it to some of you guys, but I believe this is the best way for me to learn. If anyone has any more advise I would love to hear it. Also, if something looks wrong with my numbers, please advise. Its nice to know there are people out there that are willing to help others feel comfort in REI. Thanks again,.
Neutral
Getting a general contractor to give you a quote on repairs is a very good idea for many reasons.
If the quote is detailed, you'll have a cheat sheet for the next house.
It will give you an accurate estimation of repair costs, instead of guesses by you or us.
The GC may find things wrong that you didn't.
It will automatically factor in labor costs, so even if you do some of it yourself, you won't be working for free. Many newbies miss this point.
As long as your repair estimates are not underestimated you should be alright, especially if $100K is closer to FMV (without too long of a holding time). Your closing costs are too low. You'll be closing twice, once for buying, once for selling. IF $90K is closer to FMV, you haven't included enough for the "negotiation" cost. Every buyer wants a deal.
Roger
Gotta say that 7k profit on a 6 month hold is pretty thin. I never rehab a property unless I can sell it in 3 months or less AND make at least 10k on the deal. Most times I go with two months and a profit of 15 as my base.
[addsig]
Thanks again for everyone's help. I'm pretty sure I will profit more than 7k and will hold it less than 6 months. This is just my worst case scenario. Again this is the first deal I have ever gotten this far with, so I'm really learning as I go here. I don't even own the house I live in, so the whole purchasing process is brand new to me. I know 7k doesnt sound like a lot to anyone in here, but that will pay off all of my debts and I will also learn a lot as I go through with it. I am very excited that this is actually happening and I will update the process as I get through it.
Also, the property is an REO. I am wondering, what ways could I get out of the contract if my cost of rehab is somehow way underestimated and it looks like I will lose money.
Thanks again,
Neutral
Now I'm having electrical issues... See the post no electricity in 3 years to offer advice.
Thanks,
neutral
Neutral, I sent you a private message. I am just getting started (one deal done) in New Orleans as well. Let's talk. You can check your messages at the bottom of the main forum page.[ Edited by brettjamesburas on Date 02/09/2004 ]