How to Estimate the Cost of Repairs Like a Professional
As both landlords and fix and flip investors know, most real estate investments require repairs to some extent. From smaller updates, like new carpeting to complete renovations of entire rooms, very few properties require upgrades of some sort. In fact, the whole premise of a fix and flip is, as the name implies, making major fixes to improve the nature of a property.
In order to properly evaluate the value of a property at the time of viewing, understanding the costs of repairs is absolutely essential. Without a proper understanding of how to gauge repair costs, it’s virtually impossible to determine profit margins, and without this skill, it’s possible to turn a property into a money pit rather than a source of income.
In many ways, understanding repair costs like a professional comes with time, experience, and partnerships with contractors. However, this doesn’t mean that there aren’t other avenues at your disposal to predict the costs of repairs, even for jobs that may be new to you. This is how to best estimate repair costs to elevate your chances of success in your next real estate investment endeavor.
Understand Material Costs
Those new to real estate investing and property renovations often believe that the cost of labor per-hour is the most significant expense in bringing a property up to par, but this often isn’t the case. The raw materials required to make upgrades can be substantial, adding hundreds or even thousands on to labor estimates.
Take, for example, a kitchen remodel. Whether you do it yourself or hire a pro, this kind of project could include cabinet doors, countertops, tile, faucets, doorknobs, backsplash, wood for shelving, and even flooring. In total, this range of materials can be very expensive, especially if you are using premium products, like marble countertops. These materials will be the bulk of your renovation costs, and hiring a professional will only compound this, despite being the right choice in most cases.
Luckily, researching material costs is very easy. Take time to visit your local hardware stores and specialty shops to gauge prices in your area on all basic supplies. Speak with other investors local to you about where to find the best prices and speak with your contractors and repair partners to see about industry discounts. Wholesalers can also be valuable resources for lower prices, particularly for materials purchased in bulk. As a part of your research, learn more about how materials are priced. Carpet, for example, is often priced by the square yard, while cabinetry is generally sold by the linear foot.
The quality of the materials you use in your projects can be a significant contribution to costs. For example, there’s a huge difference in pricing between formica countertops and granite countertops. Choosing to go with the highest end options available can add thousands of dollars to base renovation prices – something that can literally cut profits in half, depending on the scale of renovations needed.
While quality certainly matters, it’s not always essential to purchase the highest priced products. There’s often a line between what is acceptable and what is over the top – and it’s up to you as a good investor to figure out how to strike the right balance for each property. Things like granite countertops in a small house best suited as a starter home may look nice, but it’s not necessarily essential to attract buyers. Learn how to gauge how much certain materials can influence costs based on target buyers and the neighborhood as a whole before swinging for the fences on every job.
When evaluating quality requirements necessary for a particular project, ask yourself these questions:
- Is the potential price bump adequate for splurging on higher priced materials?
- What amenities do local buyers in the area expect?
- Will choosing lesser materials reflect negatively on the property as a whole?
- How flexible can I be on price, and will driving up materials costs lead to significantly reduced profit margins?
- Are there particular places I can cut back to afford upgrades in key areas, like laminate flooring in the kitchen in exchange for elevated bathroom fixtures?
If you aren’t sure where to start, consider attending open houses of similar properties in the neighborhood, checking real estate pages for local listings, and evaluating price ranges based on this information. Knowing what is valued in the local area is instrumental for guiding the renovation process. Ultimately, choosing materials is key to remaining competitive, so being able to find the right balance is essential.
DIY vs. Professional
There are two main ways to complete essential property projects: doing them yourself or hiring a professional. Both can be a great option, depending on the job at hand, but it’s important to understand when you can make a quick fix yourself and when a pro is required. Newer investors may believe that everything needs to be DIY, but this isn’t usually the case. DIY can save some money but will also drag out the renovation process and risk technical issues that could result in repair costs down the line. For example, a roof replacement likely isn’t a good choice for a single investor but replacing faucets in the bathroom can be handled solo.
Before getting started on a project, be honest in your own skills. If you have never replaced cabinets before, doing so on an income property isn’t the best time to start. Undertaking a large job without any experience and little but YouTube to guide you can mean overspending on materials and sinking hours into a job that would have taken a professional significantly less time. Further, a professionally managed project will likely result in better quality and a reduction in the likelihood of errors, providing peace of mind during what can be a stressful time.
Some investors truly believe in paying a pro for every single element in renovating a property. This can certainly be a good way to go, guaranteeing quality and a reliable end result. However, taking this approach can result in increased spending. For example, paying a professional to do things like change out drawer pulls and put up wallpaper can result in higher overall costs. These kinds of tasks can easily be undertaken by a majority of investors, ensuring money for contractors, plumbers, carpenters, electricians, and HVAC technicians is limited to what is most important – not whatever is easiest.
Evaluate Time Requirements
The price of products is an important part of gauging the value of renovations, but so is time. How long projects take to complete can directly influence the cost of said projects, particularly as many contractors charge by the hour or make estimates based on the expected duration.
Be sure to research how long projects actually take when handled by a professional. Take, for example, a new roof. Replacing a roof is a big project but can be handled in a day or two in most cases for an experienced team. However, some less than honest roofers may attempt to sell longer timelines and thus higher prices, duping investors unfamiliar with the roofing process into paying more. By understanding reasonable timelines for projects, it’s easier to negotiate for a fair price, regardless of circumstances.
Further, the timeline of projects can directly influence your ability to generate a project. A kitchen renovation that gets stalled for weeks can stand in the way of listing a fix and flip or bringing in a tenant, costing you money day by day. This kind of math isn’t often included when evaluating expenses, even though it absolutely should be, so be aware of the deadlines you have in mind to make the most possible from any given property purchase.
To make best use of your time, create a cohesive plan for the future of your renovation. Understand how many professionals you will need to complete a project – say, a carpenter, a plumber, and an electrician on hand to remodel a kitchen – and when specifically, you will need each one. Build a timeline that speaks to when each step will be finished to best schedule the next step without wasting any time. Hint: plan your renovation as you go through the home closing process.
Weigh the Value of Extras
For many investors, the urge to go all out is hard to ignore. When gutting and remodeling an entire room, for example, many investors want to hit every detail, replacing everything from flooring to light switches to create a brand-new feel. In some cases, this effort may be necessary, but in others, touching every last facet of a room can result in going too far overboard, wasting unnecessary money.
When planning a renovation, think critically about what truly needs to be replaced and what can be repurposed. You may think brand new cabinets are needed, but cabinets may not need to be replaced, but refinished to save thousands of dollars.
Over time, the little details can add up, taking something that seemed like a small expense – new doorknobs, for instance – and making it something that runs hundreds of dollars. Every detail in a new property doesn’t have to be absolutely perfect, so going out of your way to spend more on changes that will not significantly impact property values can mean losing money in the end. Instead, focus on the large changes that will matter most to potential buyers and renters. Investing in property to rent or fix and flip is all about making wise choices, and that means knowing where to draw the line.
It’s important to note that in some cases, little finishing touches can be needed to bring a whole room together. Replacing a whole kitchen but ignoring the old, peeling wallpaper can make a property look unfinished and in need of extra labor, giving a confusing first impression to those evaluating your property.
Profit margin is a big part of success in real estate investing, whether you prefer to buy property and rent it out to tenants or purchase to fix and flip. Learning how to estimate the cost of repairs like a professional can provide significant benefits in future real estate endeavors, giving you better resources with which to estimate expected income from any property, no matter your investing objectives.
Scott Clift is a licensed real estate broker with Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574-LOAN or by visiting westparkloans.com.