Rules of Thumb for Determining Repair Costs on Investment Properties

Posted on Dec 14 2016 - 7:49pm by Lance Edwards

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One of the biggest mistakes an investor can make is underestimating repair costs for an investment property. Seasoned investor, Kenn Sok, joined us to explain in detail how to estimate rehab repairs correctly every time.

Whether you’re a wholesaler working with motivated sellers, or an investor dealing with a wholesaler, these rules of thumb for determining repair costs on investment property deals is a must-read.

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What do you do when you see a house for the first time?

I’ll say that it actually starts before that. It starts with the phone call. When you’re talking to a seller, you want to figure out first what are the big ticket items.

Foundation

First, ask them if they have any foundation issues. A lot of times they’ll know—right off the bat they’ll say, yeah I see some cracks. A lot of times they’ll let you know they had somebody come out to fix the foundation, and a lot of times those foundation repairs have transferable warranties. You’ll want to verify that when you get to the house.

Roof

Next, ask them about the roof.

If they have these issues (foundation and/or roof), you know that these are going to cost a lot of money.

Generally, on a standard house (between 1,000-2,000 square feet) you’ll spend about $4k-$6k or so depending on how many floors the house has, how much it needs to be raised, and what the square footage is.

Ask how old the roof is. They may know, or they may not. The better question is when was the last time the roof was replaced? Then they can say, Oh, I bought this back in ’98 and I replaced it two years ago. If they do replace it, great. If they didn’t replace it, you can still ask the question: Is this a 15, a 20 or a 30 year roof?

A 20 year roof generally has a lifetime of about 15 to 17 years. A 30 year roof has anywhere from 22 to 25. If they don’t know that answer, and if it’s greater than ten years, you’re probably going to have to consider a roof replacement. It’s just something to keep in mind for when you go to the house. The timing of the replacement depends on your exit strategy.

If you’re going to rehab it and you can see that the roof needs work, then you’ll probably have to replace it. If it’s a rental, then you’ve probably still got a couple years out of the roof.

So, foundation and roof are first. A/C unit is the third big potential repair.

Air Conditioning Unit

First ask if the house has central air or window units. If it has window units, ask how old the units are. Those things are $200-$300, so you can easily replace them.

If you need to completely install central air, then that could be a big ticket item. Again, it goes back to your exit strategy. If you’re renting it out, then you can probably just replace the window units. If you’re going to rehab it, see if it makes sense in that neighborhood to replace the central air or not.

Replacing the unit would definitely increase the after repair value or rental value, even if it’s not in a great neighborhood. It will make it stand out if the other houses in the neighborhood don’t have central air. It costs anywhere from $2,000-$5,000 to do that. Maybe even more, depending on the size of the house.

Those are your three big ticket items: roof, A/C, foundation.

General Condition

Another question I ask on the phone is, Would you say your house is in great condition, good condition or does it need some work?

More often than not, it’s worse than whatever they say. If they say it’s in great condition, it’s probably in good condition and needs some work. If they say it’s in bad condition, then you already know right off the bat… Aw, this thing is going to be a beater.

Be realistic about it—everybody thinks their house is nicer than it actually is. Using these terms just gives you a ballpark.

Notice that my question is very specific. You don’t want to ask if the house is ugly or damaged, because you want to show as much respect as possible. Try to get information without being offensive.

MyHouseDeals.com is owned and operated by its founder, Doug Smith, and a staff of highly-skilled and hard working team members.

Most of the properties on our website are single-family houses. Many of these properties are wholesale deals, which are for sale by other investors. Others are motivated seller leads, which are for sale by homeowners who are often in a bad situation. These properties are typically discounted by far greater amounts than bank foreclosures.

The company was founded in April of 2005 and has since provided information on 98,604 bargain-priced properties containing $8.0 Billion in equity. In addition to property lists, we help investors succeed by providing valuable tools, resources and education.

Our Mission/Vision

Below is our mission/vision statement. It guides our actions, spells out our overall goal, provides a sense of direction, and guides our decision-making.

To help creative real estate investors achieve their dreams by providing them with training, networking opportunities, and highly discounted property leads.

Our Core Values

Below are the core values that we live by. They reflect what is truly important to us as an organization. These values do not change from time to time, situation to situation or person to person, but rather they are the underpinning of our company culture.

  • Utilizing honest and ethical business practices.
  • Creating and selling only products we believe will benefit our customers.
  • Supporting team member happiness and excellence.
  • Focusing on productivity and attention to detail.
  • Attracting, developing, and retaining the best talent.
  • Actively pursuing measurable results to guide our business decisions.
  • Willingness to take risks that may improve the welfare of our business and customers.
  • Embracing a sense of optimism and possibility

 

About Doug Smith, Founder and President

dougsmithHere’s a brief bio for those of you who aren’t familiar with me or my real estate investing experience.

I was born in Lubbock, TX and grew up on a cotton farm just outside of town. I had a very exciting childhood, spending most of my free time playing sports with my twin brother, Trent. My dad was a cotton farmer and my mom was a secretary. (No one in my family has a real estate background.)

When we were born, our family was lower middle class, but our parents always found ways to make ends meet. The consecutive years of bad crops led us to coin the phrase, “That’s just Smith luck” … which was bad luck of course. But fortunately, as my brother and I entered high school, our family became more middle class because my dad’s cotton crops had gradually become more profitable.

After high school, I decided it was time to “get off the farm,” so I went on to attend and then graduate from Texas Tech University. I was a Business Administration major and a Spanish minor. (That comes in handy in Texas!) After graduation, I moved to Houston, TX to work as a software developer for ExxonMobil. I planned to work my way up the corporate ladder like all good boys and girls are supposed to do.

But a few months later, I realized I HATED working there. I felt more like a prisoner than a “career man.” So I looked for other options and read in a few books that most millionaires either made their fortunes in real estate or regularly invest in real estate. So I resigned after one year to buy, fix, and re-sell houses full-time. I said to myself, “no guts, no glory!”

But my investing career didn’t go so well at first. After 8 months of putting out signs, putting ads in the newspaper, and cold-calling sellers, I hadn’t bought a single property. In fact, I was $5,500 in debt from my marketing expenses. I’m not a violent guy, but one night I was so frustrated that I kicked my trash can across the room. I actually still have that trash can and those shoes I kicked it with to this day…

But I didn’t give up! After becoming more educated about investing and discovering how to buy properties from wholesalers, how to get leads from the Internet, and how to do short sales, I FINALLY bought my first property. It’s true what they say. The first one really is the toughest!

I then went on a “frenzy,” buying 41 houses over the next five years. I was able to do this with no prior experience and using almost every creative purchasing method out there. I bought most with no money down and no credit check.

Looking back, I’m thankful that I didn’t give up on myself. My success in the field of residential real estate investing has allowed me to become “financially retired.” In other words, I don’t have to work anymore, but I do because I enjoy it.

My success has also allowed me to network with some of the greatest minds in business through my membership in Entrepreneurs Organization, which is an exclusive club for real estate investors and other business people who bring in at least $1 million per year in gross revenues.

In addition, I’ve been able to give back by sharing my investing knowledge to aspiring investors. To date, my investing tips and articles have been read by over 200,000 investors, and I’ve conducted over 25 seminars to investors throughout the nation, speaking to audiences as large as 800 people.

My profits from real estate investing also gave me the capital to start MyHouseDeals.com. But I’m most proud that I’ve been able to transform people’s lives by giving them life-changing advice and access to highly profitable investment opportunities. And that this information has empowered them to make hundreds of thousands of dollars, quit their jobs, and most importantly, enjoy their lives with their friends and family.

When I’m not investing in real estate or overseeing MyHouseDeals.com, I enjoy traveling. I currently take about 12 vacations per year. I also enjoy softball, disc golf, and playing the guitar.