I see it all the time in real estate investor forum posts – “I think I can get away with $15,000 in repair costs” or “I’ve set my rehab budget at $10,000 for this property.” Obviously a SWAG (scientific wild ass guess). Don’t make offers on fixer upper houses based on a number you pull out of thin air, its a great way to lose money.
How do I know this? I used to buy houses this way and got tired of stressing out about running out of money or putting too much money into a house. I created the Rehab Offer Calculator and the Home Remodeling Cost Calculator so that I’d always have a way of accurately estimating repair costs for any fixer upper house quickly enough to make an immediate offer, lock up the best deals, and confidently move forward with the renovation project knowing that I’ll make the profit I want.
If you aren’t going to use my tools or some other method of estimating the total renovation cost repair by repair, at least do a high level estimate using actual costs – don’t just guess. You’re still taking a risk buying houses this way but at least you’re not completely rolling the dice.
Home Advisor recently published a great guide to predicting costs for 57 of the most common house repairs:
Keep in mind that these costs are national averages, don’t take into consideration the size of the house and aren’t very specific (e g install a garage door – 1 or 2 car? what style?) so be careful how much you rely on these to predict your actual house repair costs. Even so, I’d much rather see an investor using figures like these to put together a total cost estimate that’s at least directionally correct vs just guessing.
In a previous post, I shared 3 home repair cost sites that offer free access and are relatively accurate but in at least some cases tend to skew towards the high side. Remember that estimating costs too high can sometimes be just as bad as estimating too low because it may result in you walking away from an opportunity that you can make money on or being outbid on a property.
I’ve seen a number of the real estate gurus promoting the idea of just making as many offers as you can as quickly as you can. “No risk, no reward!” I won’t ever say that you can eliminate all the risk involved with buying fixer upper properties, but by accurately estimating repair costs you can dramatically lower it. You don’t need to accept the high amount of risk that comes along with just winging it when you make an offer on a fixer upper house to be successful.
Agree or Disagree? Let me know your thoughts and experiences estimating repair costs and the impact that’s had on the bottom line by posting a comment below!