Estimating Rehab Costs for Property Flips for Wholesalers
Understanding the cost of renovating a property is key to a successful real estate flip. This quick guide provides a brief insight into the essential elements of cost estimation.
- Understand Rehab Costs: These costs comprise materials, labor, permits, and other expenses that arise during renovation. Rehab costs vary based on property condition and renovation scale.
- Apply the 70% Rule: This rule suggests that investors should pay no more than 70% of the After Repair Value (ARV) of a property, minus the repair costs. Learn more about the 70% rule here.
- Conduct a Property Inspection: A thorough inspection helps identify necessary repairs and upgrades. Major cost areas usually include the roof, foundation, HVAC system, plumbing, and electrical system. Find out how to conduct a detailed property inspection here.
- Estimate Material and Labor Costs: After identifying the required repairs, estimate the material and labor costs. As a beginner, it’s helpful to get quotes from contractors or use a cost estimating service. Read this guide on estimating material and labor costs here.
- Consider Market Conditions: Understand your local real estate market. This includes the type and level of renovations that buyers expect, and how these affect a property’s sale price.
- Factor in Permits and Legal Requirements: Depending on your jurisdiction and the scope of the rehab, you may need permits, inspections, or permissions, which add to the rehab cost.
Estimating rehab costs is a critical skill for wholesalers. With a systematic approach, you can ensure a profitable flip. Learn more about the art of real estate flipping here. Stay tuned for more real estate flipping insights!
Rehab Calculator Cheat Sheet
This table can provide a rough estimate on what rehab costs might look like. This is in no way meant to represent your rehab costs, rather a guide to help get you started. You’ll want to consider the labor costs and materials in your area.
| 1,500 SQFT. | 1,500-3,000 SQFT. | 3,000+ SQFT. | |
| Light | $15,000 | $20,000 | $25,000 |
| Medium | $25,000 | $30,000 | $40,000 |
| Heavy | $60,000 | $65,000 | $75,000 |
Light: Condition with only paint or simple exterior cleanup needed to improve curb appeal.
Medium: May need new fixtures (plumbing and light), new tile, new tub/shower, new sinks, new paint and more. Windows and doors may also need complete replacement due to age or functionality issues.
Heavy: This is the all-in rehab where you look at everything from the “light” and “medium” levels to throwing in major items, such as foundation repair, roof replacement, replacement of appliances such as AC/Furnace, and door and window replacement.
