By Dave Dinkel

An investor who rehabs becomes more efficient at estimating repair costs as he remodels more homes. In the case of rehabbing, size does matter because of the expense of the larger size of the basic mechanical systems in the house. These include the electrical, plumbing, roof, heating and air conditioning, flooring, sewer/septic, doors and windows, etc. The more closely the buyer can estimate repair costs the more successful his career.

Properly estimating repairs or having someone do it for you is powerful because it allows you to be in a stronger bidding position than your competitors. This is especially true when the seller has gotten repair estimates that are twice or three times what you can have them done for. We have had homeowner or realtor estimates of repair jobs that were in the $60,000 range that we did ourselves for under $18,000. The benefit to us was the seller had an incorrect expectation of what the cost would be and passed along the “savings” to us in the form of a price reduction/larger profit.

Contracts use the square footage under air of the house as their primary guideline for estimates of their bids to the homeowner. Even such large systems as air conditioning and heating systems are sized by the square footage of the house that will be air conditioned or heated. So this standard of measurement is in one way or another used by contractors, handymen, and any professionals that do work on a house. There is always an exception for custom cabinetry and remodeling of bathrooms and kitchens but even these come back to square footage of the room or the room and the walls.

The majority of building departments and tax assessors” offices use a constant dollar amount for estimating the improvement of a building project. This amount is +/- 15% of $75 per square foot. I can hear the groans from the audience as I write this, but I have it from many inspectors that this is the value used nationwide, an obvious exception is California, and there are others. Whatever the exact value, it is not a secret and can be requested from your local building department. Since this figure is used to determine your new tax assessment, it is better not to complain that you spent $20,000 on a 10” x 10” kitchen remodel!

Armed with this estimated cost per square foot for your area, you can now construct a “Repair Estimate Table” which looks like this:
Type or extent of repair Cost per Square Foot
Minor patch and paint and new flooring $5.00 - $7.50/sq. ft
Above + Exterior paint and drywall repairs $10.00/sq. ft.
Above + replacement of plumbing, electrical,
Kitchen, bathrooms $12.50 to$20.00/sq. ft.
Above + roof replacement and extensive
Exterior repairs $25.00 to $30.00/sq. ft.
Burned out needs everything but walls $75.00 - $90.00/sq. ft.
If you use a contractor for any of the above work, add 50% to the cost.

In summary, these “rule of thumb” estimates are just that and I suggest that you get software to do accurate estimates of repairs when you think you want to do a rehab or just to do better estimates of rehab costs for a wholesale flip so the buyer has a good idea of what to expect. If you rehab the house, stick to your budgeted cost expectations and if you bought the property at the right price, you should be able to come out ahead.

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