A critical factor in successful real estate investing is controlling costs including the rehab costs.  One of the areas many inexperienced investors go wrong is spending too much rehabbing the property or not allocating enough money for rehabbing.  This section will give you a good understanding of how to estimate these costs. Note that almost all the property you will buy will need some level of rehab.  Most of the best deals I have seen have cosmetic damage that must be repaired before it can be rented.  Why are these frequently the best deals?  Because they are unlikely to sell and they end up getting discounted.  I will explain.

Buyers tend not to be able to look past cosmetic damage: rugs, paint, etc.  When they walk into a property and they see damaged rugs and dirty walls, they tend to turn around and leave.  And, sellers are unlikely to invest money rehabbing a property; they would rather discount the property and let the buyer fix it up.  This is especially true for bank owned properties.  

Note that there are some types of problems which I would never consider dealing with.  Two are mold and structural defects.  If there is any more mold than an easily accessible area of one or two square feet I would not buy the property.  If you think it is a super deal, have a licensed mold remediation company evaluate the property.  If you actually smell mold, walk. 

How do you estimate the cost to rehab the unit?  Spend some time at the local Home Depot, Lowe's or similar store and get a feeling for what carpets, vinyl, paint and such cost.  For example, suppose you establish that you can get builder grade carpets installed for $1.75/sqft and you are considering a 1,200 foot property that is 80% carpet.  The estimated cost for replacing the carpet would be 1,200sqft x $1.75 x 80% = $1,680.  Be certain to check if installation on stairs costs extra.  You would basically do the same process for every item that needs repair.  

I provide my clients rehab estimates based on rates I have pre negotiated with vendors using software I developed and my personal experience with my own rental properties. Hard quotes are obtained by the Property Manager during the due diligence period.

Remember that you won’t be living in the property.  Do not succumb to the temptation of "stainless steel is only $200 more, so I will go with stainless instead of the white."  If the other appliances in the unit are white enamel, buy white enamel.  Also, a washer is a washer.  Unless you are planning to purchase high end units, basic appliances are what you want.  Also, note that Sears, Home Depot, RC Wiley and others have scratched and dented appliances at great savings.  I would not buy one that had a big ding in the front door but a ding on the side is no issue as long as it has a "new" warranty.

As the number of properties I owned increased, I also standardized on certain things.  For example, I used faux wood binds in all the units.  When one would become damaged I could use parts from the damaged shade to fix others.  The same was true with carpet.  I was able to use clean portions of carpets from one unit to repair carpets damaged in another there by only having to buy carpet for one unit. 

Call me today for your real estate investment needs, you will be glad you did.

Eric Fernwood
702-358-8884
EricFernwood@Gmail.com