When you’re just starting out, estimating repair cost can be intimidating.
If you haven’t had much practice it’s hard to know how much certain repairs will cost. Today, I wrote a post outlining three formulas you can use to quickly and effectively find repair cost for any house you are interested in making an offer on.
Let’s get into it!
How do you estimate repair costs right when you’re starting off?! I know this is a big issue because at the point in your real estate journey you probably don’t have much experience accurately determining repair costs. If you are looking to flip or wholesale a house it’s important to understand how much it will cost to fix the house when you are making an offer. You must have some idea of what kind of repair costs you or your cash buyer will be facing.I highly recommend that you use the formula that I am going to give you to estimate these repair cost before you make an offer on any house! Please remember that these formulas are used to make a general estimation of the repair cost. During your inspection period, you will absolutely want to get multiple contractors to give you accurate estimates on the work you want to be done! You can use these prices to check these estimation formulas I am going to provide. I want to stress that these formulas are used to make quick estimates and should be used when you are making offers. As you know this market is competitive and it moves quickly you don’t usually have the luxury to walk your contractor through a job before making your cash offer. That’s why these formulas are helpful they allow you to come up with a good, quick estimate so you can place your offer quickly increasing the likelihood of closing the cash deal. The numbers I will be giving you have worked well for me, I am in the Northeast so depending on where you are these cost may be a little high. But I would much rather have you estimating high than low. I suggest that you check these cost against your contractor’s bids once you start getting more pricing from them Ok so let’s talk number and get into these formulas.
Tier ONE: My tier one formula should be for a house that needs minimal cosmetic work. These are houses that are pretty much ready to go! These houses could use some updating to get top dollar. Here are the types of tasks that this formula covers: Fresh Paint Some Flooring Minor Landscaping Some Light Fixtures Deep Clean For homes needing these types of updates, you should estimate $15 per sq. ft. Again, this might be a little high but I want you to be conservative with the formulas. This means that if you have a 1,000 sqft. starter-home your estimated repair costs would be $15,000
Tier Two: My tier two formula includes all of tier one costs plus: Kitchen & Bathroom Updating – This is not a high-end bathroom renovation, this price includes a standard builder grade rehab with standard fixtures. For this type of home, I use $25 sqft should be used. Again, if we’re applying these costs to a 1,000 sqft home you can estimate that your repair cost will be around $25,000.
Tier Three: My Tier three formula includes both my tier one and tier two costs plus: 1 – 2 big ticket items, This means any tasks that are outside the scope of what we have already covered. Think new roof, heating system or structural issues that need to be addressed. For this type of home, I use $35 per sqft to estimate my repair costs. Applying this to you 1,000 sq. ft. home we can estimate that our repair costs will be around $35,000. If, there are more than two big ticket items I like to plan at least $5,000 per addition big ticket item. There are the estimation formulas that I use to determine repair costs quickly! Once I have the home under contract and we have entered the inspection phase I check my costs with 2 – 3 contractors and adjust my estimates if needed. This is crucial when investing in real estate – don’t skip this step! I also wanted to mention that I personally include a 5% – 10% contingency within my cost so I know any unknowns will be covered by my repair budget if needed.
Click here to check out my latest video where I explain these formulas even further!