Home Flippers: Here’s How to Estimate Rehab Costs Before You Buy

By: , Contributor

Published on: Nov 12, 2019 | Updated on: Dec 01, 2019

Flipping a house can be a great investment to make if you know how to run the numbers first.

Accurately estimating a home’s potential rehab costs is a critical step when buying a flip. Estimate accurately, and you can hone in on that right-sized offer and ensure your returns on the tail end. Estimate incorrectly and, well, you probably won’t be very pleased with yourself.

Unfortunately, unless you’re an experienced contractor, estimating those costs can be pretty difficult. You not only have to take the home’s current condition into account, but you also have to weigh things like local labor costs, parts, materials, and more. It’s definitely an art form, and it takes time and the right resources to get it right.

Are you new to house flipping? Not sure where to start when evaluating a property? Here’s how to estimate rehab costs before you buy that first home:

Step 1: Know your endgame

Before you can even begin to estimate your rehab costs, you first need a clear picture of what that "after" photo looks like. What do you want the home to look like when you put it on the market? What upgrades and amenities would you add?

Part of this takes knowing the market and current trends, but it also requires understanding local buyers -- what they like, what they don’t like, and what they expect when buying a house in the area. If you’re not sure about this, talk to a real estate agent for guidance. They deal with buyers daily, and should have some insights that can help.

Step 2: Study your comps

Before you walk a potential property, you should know what other homes in the area look like. This will allow you to better gauge a house’s condition, as well as what it will take to make it marketable. Pull recent comparable sales in the neighborhood, and take a close look at listing photos. If there are any comparable homes for sale nearby, consider scheduling a tour, or attending an open house to see their condition in person.

Step 3: Thoroughly examine the property

Be extra thorough when touring a property, and look beyond just the general aesthetics of the home. Make sure you’re paying attention to smaller details -- like doors or windows that stick (hello, foundation problems!), signs of pests or bugs, and potential plumbing and electrical issues. These could all indicate big-picture problems that take deep pockets to fix.

You might also consider bringing a camera along so you can snap photos of potential issues and refer back to them later. Just make sure you ask the seller first. If they’re still living on the property, they may be uncomfortable letting someone photograph their belongings.

When you walk a potential property, use the chart below to guide your assessment and keep track of your findings.

AREA / ROOM ITEMS TO CHECK NOTES
Exterior of Home Doors and door hardware
Windows and window hardware
Patios/porches
SidewalksDriveways
Porch lights
Roof
Paint
Siding
Front Yard Lawn
Gardens
Trees
Other landscaping
Backyard Lawn
Garden
Trees
Pools
Storage sheds
Other landscaping
Garage Flooring
Tool benches
Cabinets
Shelves/storage
Garage door
Kitchen Appliances
Countertops
Cabinets
Flooring
Pantry
Sink
Paint
Light fixtures
Windows
Doors
Master Bedroom Flooring
Paint
Light fixtures
Windows
Closet Doors
Bedroom 2 Flooring
Paint
Light fixtures
Windows
Closet Doors
Bedroom 3 Flooring
Paint
Light fixtures
Windows
Closet Doors
Bedroom 4 Flooring
Paint
Light fixtures
Windows
Closet Doors
Dining Room Flooring
Paint
Light fixtures
Windows
Doors
Living Area Flooring
Paint
Light fixtures
Windows
Doors
Fireplace
Stairwell
Living Area 2 Flooring
Paint
Light fixtures
Windows
Doors
Fireplace
Stairwell
Study / Game Room Flooring
Paint
Light fixtures
Windows
Closet Doors
Utility Room Washer/dryer hookups
Shelving/storage
Flooring
Paint
Light fixtures
Doors
Bathroom Sinks
Showers/bathtubs
Flooring
Paint
Toilet
Light fixtures
Mirrors
Closet
Cabinets
Bathroom 2 Sinks
Showers/bathtubs
Flooring
Paint
Toilet
Light fixtures
Mirrors
Closet
Cabinets
Bathroom 3 Sinks
Showers/bathtubs
Flooring
Paint
Toilet
Light fixtures
Mirrors
Closet
Cabinets

Step 4: Talk to a contractor

Once you have a good idea of what repairs and updates you’ll need to make to the home, reach out to a local contractor (or a few, even), and ask for an estimate. Make sure they’re clear about what their quote entails, too. You need to know if they’re including materials and parts in addition to labor. If not, you’ll need to factor those in separately.

You can also use various home contracting websites to gauge pricing on common projects. Some good resources include:

If there’s a contractor you know and trust, you might even consider asking them to tag along when you tour properties. They may have some good insights to offer (or be able to spot a dud right away!).

Step 5: Factor in extra costs

Finally, you’ll need to think beyond materials and labor, and factor in the simple overhead costs of doing a rehab.

Specifically, you’ll want to determine:

  • The cost of any city permits that might be required
  • Your estimated marketing expenses (including agent commissions)
  • Costs for demolition and haul-away services
  • Pest or insect treatment charges
  • Appraisal and home inspection fees

Once you’ve added up all your project costs, you can start to hone your bidding strategy.

Do you expect to list a house at $250,000 after $30,000 in repairs? Following the 70% rule, your offer should clock in at $145,000 or less (250,000 x 0.70 - 30,000). (The 70% rule says you should only offer 70% of your expected after-repair value. It’s a long-held investment formula that keeps you from overbidding and safeguards your returns.)

All that’s left now is to call your agent, submit that bid, and cross your fingers.

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