Estimating the Cost of Repairs for Flipping a Rehab
of real estate) is to fix and flip a rehab property. The investor
finds a property for sale that needs repairs, buys it at a price well
below the retail market value, assumes responsibility for making those
repairs, and then resells the property to a homeowner at its retail
value. It can generate a hefty profit, tens of thousands of dollars
on a single property, but only if the investor thoroughly researches
the cost of turning the home from a substandard shack to a picket-fence
American dream-home.
Obviously,
that’s an exaggeration of what you’ll be doing as a rehabber, which
in all likelihood is going to be nothing more intensive than updating
some systems, repairing the roof, painting, and so forth. But
it gives you the sense that the transformation to make the home suitable
for retail is going to cost time and money, and you need to approach
the initial deal cognizant of that. You make the profit on the
day you buy the property, not on the day you sell it. Which means
you need to accurately account for the cost of repair, ownership, and
resale.
Let’s
just address the cost of repairs. Always overestimate, or you
will eat away your profit. First, before you buy anything, make
a thorough assessment of the house in which you literally check every
inch of every room. Write down everything that needs to be replaced,
modified, repaired, or added. Write down everything!
Every little detail you omit will be an unforeseen cost you incur later,
and they will pile up. Take your list to a hardware store and
find out exactly how much the materials will cost. Next, you must
account for the labor cost to install all of the hardware, which unless
you plan to do everything yourself will be about $1 for every $1 spent
on materials. Finally, increase your total by about 20% to get
a final estimation. This increase is for contingencies—if anything
should happen that you didn’t predict, this will reduce the likelihood
that your profits are eaten away. Whatever the final estimation
is, round up to the nearest clean number.
If
you can negotiate to buy the property at a price that, if added to your
estimation of the cost of repairs, you think you can sell the house
for, then you’ve found yourself a good deal. Don’t forget
about the cost of selling and owning the house, and remember: you make
your money at the point of purchase (not sale), so don’t just jump
in with two feet every time you find a home listed below market value.
InvestmentPropertyMadeEasy.com
InvestmentPropertyMadeEasy.com
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