calculating rehab costs

I am getting ready to take the plunge. I feel confident with my “formula” (see below). My issue is how to accurately calculate rehab costs. I know that it will not be perfect but I want it to be as close as possible. I have a contingency amount worked into my formula as well.

Here is my formula:

Maximum Retail Value
-purchase costs
-rehab costs
-holding costs
-sales costs
-contingency factor
=maximum purchase price

*thanks to Kevin Myers Buy it, Sell it, Profit

First, does anyone see a major flaw with this?
Second, back to the original question, how do I calculate the rehab costs?

I have an agent who started off in the rehab business and gives me estimates as we go through the houses, but I am slightly nervous taking the salesman’s word. I will have an excellent home inspector also come in and go through the house with a fine tooth comb and the bid will be contingent upon a “satisfactory home inspection”. I have heard of people bringing contractors for estimates during the bidding process, but the agent says it is overkill. I also have done some remodeling on my own home so I have a general idea of what is involved and will do some of the work myself.

Any suggestions as to what you all do or have done would be great.

:smiley: Hooray on my first post, I am no longer a lurker. :smiley:

Your formula looks fine. The big question is whether your agent is accurately calculating rehab costs. It’s your money, not his. If you plan to use a contractor to do the rehab, why not bring him during the inspection period? It may be a p.i.t.a. for your realtor to schedule a second or third or fourth walk-through, but again-- IT’S YOUR MONEY. As far as your relationship with your realtor goes, remember, you’re the boss! If he doesn’t want to work for his money, find another.

If you are going to do it yourself, then get out your pencil and tape measure. Then go price out how much it will cost; and don’t forget your labor-add something for your sweat or you may end up working for free. As far as time estimates, figure out how long it will take you to complete a task, then double it. It’s amazing what you find when you start tearing down walls.


DDavis is sooo right…If you’re going to use a GC by all means get him involved before you finalize the contract. When I decided to rehab my “interim” residence (it’s a long story) as a learning experience before doing it as a biz, I got a GC who understood what I was doing and negotiated better profit/project management fees.

I now have my first real house under contract. I’m actually partnering with my new GC (split profit on backend). He went thru the house before I put in an offer, and then went thru it with an architect before the ink was dry on the contract.

BTW, my advisor claimed I wouldn’t get killed on my first project but probably wouldn’t make anything either. How right he was. He also claimed I’d do better the next time around…sure hope he’s right again!

Good luck,


I did it. I placed my bid and it was accepted. Now i have an inspection this friday with an inspector that i trust. There were some foundations issues that i estimated a cost for but am having a foundation expert or two come durring the inspection so that i can get the real deal on how much it will cost to fix. If it jumps up more than my max estimate then i have to back out.

Other than that there will be some electrical upadting that needs to be done (I won’t touch that) but mostly everything else I’m going to do myself.

I’m excited and nervous all at the same time. Wish me luck.


If you’re dealing with a slab foundation make sure your contractor will give you a warranty that you can pass on to the buyer. When a slab fails, it’s usually secondary to a water leak, poor drainage, or subsoil conditions. The contractor should be able to identify drainage issues (negative slope) but plumbing leaks are more difficult to find. Sometimes the slab itself wasn’t engineered correctly, and is simply too weak to support the load of the house. There’s also subsoil conditions, which either subside or expand-- either can break the slab. Bands of clay underneath the soil play havoc with foundations in my area. Of course, a failed slab could be the result of a combination of any of these problems.

Anyway, the warranty is key because it will give your buyer peace-of-mind and make an easier sale. Don’t forget to figure drywall repair into your rehab costs if leveling the house will mess that up. If the re-leveling process will break your water and/or drain pipes— that will be a mess. Having plumbers dig under/ jack hammer through a slab is a big deal. One indication that you will have big problems is that the leveling process breaks the windows. That is rare, however, and the house has to be way out of level (maybe 3" over 10’) for that to occur.

Don’t get too worried, these are issues to raise with your contractor. Make sure you know what you’re getting into. Find out what your contractor is willing to guarantee and what is not covered by the warranty. Remember that you are selling the house “as-is” and do not promise any warranty above and beyond the warranty that your contractor will transfer to the buyer.

This is the reason I love pier and beam foundations. You can fix or replace the foundations with little difficulty; and wiring for new electric or re-plumbing the whole house is a breeze.

Well let me re-update :
The home inspection is over and I withdrew my offer. I knew about the the cracked foundation that needed work but i did not know about the walls separating from the house. Underneath the wall paper there was a gap of about 2-3 inches. There was MAJOR structural issues with the house that I did not want to deal with in my first attempt. I did not calculate anything of that extent into my rehab costs.

So even though I am disappointed I am even more happy that i found out abouth these issues now and not later. I also tend to get “emotionally” attached to projects and I am glad that i was able to step back and rely on the numbers. It was a no go. With out even rehabing the first house i feel like i learned a major lesson. I have not given up only becomed more determined to find the house that wil be a “go” for me.

You probably did the right thing – in fact as long as you are satisfied, I KNOW you did the right thing (for you)!

You’ll get 'em next time. Lotsa houses out there!


You did good for your first attempt, you walked away from a dead end deal.

It is always a business decision, and it’s not personal, even though you put allot of time and effort, and some expense, into it, that doesn’t mean you’re married to the deal.

If the numbers don’t work, walk away. And you did that. Chalk it up to a learning experience, and move on to the next good deal, but now you know a little bit more about what to look for, and some idea of costs.

Fire that agent, and find one that will support your needs as an investor. Find an agent who is also an investor.

Interview agents as you would interview someone wanting to come work for you. If they aren’t working out for you, FIRE THEM! Remember, you’re the boss, and they’re working for you, if you sign a buyer’s agreement, if you don’t they’re not working for you. They’re working for the seller of the property. You’re only a customer then, and not a client. The written agreement to provide services is binding, and you can fire them at anytime, as the agreement is written. Don’t let an agent give you the run around.

Allot of agents don’t like working with investors, because of timing, the invesotr, may be looking for a property for a year or more, but then they’re not very much into investing then are they?

Now remember everyone, an agent ONLY gets paid if they assist in the sale of a property. That’s it, other than that, they’re not making a dime from the business as a Realtor, now if they’re also an investor, they’re many money from other sources, so they may be able to give you the attention, and focus required, if they have other means of income coming in. Like Me! But anyway… most agents don’t have other means of income coming in, so they make their money doing deals, the more deals, the more money. Just like you… the investor.

Find a good agent, make sure they hold the qualifications that you want in someone representing you, and keep them for like! They can help you find the good deals, and they can get paid!

But don’t make any deal personal… All of them are business tranactions.

Good Luck!