10, 20, 30 Rule of Thumb for Estimating Rehab Costs?
Is the 10, 20, 30 rule of thumb for rehab costs accurate? - Question on BiggerPockets.com
The scary thing about these 'quick rules of thumb' provided by random people on Facebook (or gurus on the internet) is that newbies use them without understanding what's included.
What scope of work is included in the light, moderate or full gut? Did the contractor provide a detailed breakdown of the scope that is included in each of those scenarios? What grade of materials? What level of finishes?
You can get yourself in a lot of trouble using these rules of thumb.
The $30/sf for the 'full gut' is the most expensive value the contractor provided which implies to a newbie that it's a 'worst case scenario'.
So newbies will make an offer using the $30/sf thinking they have everything covered because they used the 'worst case scenario' rule of thumb.
Once the newbie gets the property under contract and invites the Facebook contractor out to bid the project, the Facebook Contractor's bid is $50/sf+ because the property needed a new roof, new windows, new HVAC, new electrical, & had foundation issues that weren't included in the original 'full gut' scenario.
So again, I ask do you really know what scope of work included in these quick rules of thumb?
The random Facebook contractor may be correct (under certain circumstances), but these rules cannot be applied globally because every single house and project is different. Therefore the only accurate way of estimating rehab costs is to put together an itemized list of all of the repairs that are needed for that particular project.
Here is the process I recommend for learning how to estimate rehab costs instead of using quick rules of thumb:
#1 Read the Book on Estimating Rehab Costs
JScott's 'The Book on Estimating Rehab Costs' is a great resource for new rehabbers to learn how to Estimate Repair Costs on 25 common rehab repairs.
#2 Explore Lowes and Home Depot to Learn About Material Pricing
Take a tour through Lowes and Home Depot (or their websites) and look at finishes materials and fixtures that you will consider using in your rehab projects. This will help you get a better idea of what tile, hardwood, carpet, plumbing fixtures and light fixtures costs for your rehabs.
#3 Contact Local Contractors for Labor Pricing
Call local Subcontractors and get budget pricing for common repairs on your typical rehab project.
For example, call a roofer and ask what their average cost per Square of Architectural Asphalt Shingle Roofing would be on a 1,500 sf house, with a 6/12 pitch.
Note: Some contractors will be reluctant to share pricing without seeing the property, but tell them you are just looking for a rough budget number you can use on future projects.
#4 Use our Estimating Software & Databases to Organize the Process
Once you start to get a better understanding of Labor and Material costs you will want to store this data into a spreadsheet or software that you can use to help you streamline the estimating process.
Our Estimating Software comes pre-built with a database of over 500 common repair items and unit prices that can help you get started. You will want to customize your database with your own personal pricing that fits your specific market, materials and specific project needs.
You can then use our Estimating Software to practice estimating rehab costs for potential rehab projects.
Learn more about our Rehab Repair Cost Estimator Tool
#5 Practice, Practice, Practice
Walkthrough potential rehab properties (or find properties virtually online) and practice creating detailed scopes of work, quantifying repairs and estimating rehab costs for the projects.
Use our Estimating Software to practice estimating rehab costs for potential rehab projects. This will help you get acquainted with common rehab repairs, rehab costs & estimating terminology.
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