Flipping homes can be a lucrative business, but it can also be a bankrupting business when poor decisions are made. Knowing how to identify a good investment opportunity and accurately estimate the costs of repairs can help you avoid financial ruin.
Here’s how to estimate repair costs when flipping a home.
Home Repairs, General Contractor and Subcontractor Costs
The first thing to consider when estimating repair costs is the home itself. Is the home a serious fixer-upper, or does it only need a few repairs?
Keep in mind that there may be hidden repairs that you won’t know about until after you start digging into the project. We’ve all seen fixer-upper shows on TV where they take a sledgehammer to the wall and find decades-old mold.
Create a budget repair sheet, also known as a cost estimate form. These forms are essentially spreadsheets that will track the repairs needed in different areas of the house. As you walk through the home with your general contractor, make note of the things that need to be repaired.
You may not be able to spot the mold inside of the walls during the walk-through, but a budget repair sheet will allow you to at least estimate the physical repairs.
Material and Labor Costs
Once you have a list of estimated repairs needed for the home, you can begin building a list of materials and estimated costs. Additionally, you need to consider labor costs.
First, let’s look at materials. One way to estimate the cost of materials is to record a high and low price estimate for each item. Once that is complete, add the two totals and divide that number by two to get average cost.
Here are some examples:
- Paint: High – $1,200; Low – $1,000
- Doors: High – $400; Low – $200
- Tile: High – $1,200; Low – $700
- Carpet: High – $2,500; Low – $2,000
- Windows: High – $400; Low – $300
On the low end, the total is $4,200 and on the high end, the total is $5,800. The total comes to $10,000. We’d divide that number by two to get an average of $5,000.
If there are major repairs, such as plumbing work or roof issues, you may need to gather several estimates from local professionals to determine these costs, as the figures can fluctuate wildly. Additionally, as Miranda Home Services explains, you want it fixed quickly at a price you can afford.
Additionally, you’ll need to figure in the contractor’s and subcontractor’s fees. It’s important to remember that you’re not just looking for anyone to get the job done. You want to hire a contractor who is well-rated, will get the job done right and will not just abandon the project mid-way. If you plan to sell the home, it must pass inspections and impress potential buyers. Poor craftsmanship will show through and turn away potential buyers.
Expect to pay more for a good contractor, but the peace of mind and quality work is worth the cost.
Utilities, Insurance and Taxes
In addition to repair costs, you’ll need to consider the costs of utilities, insurance and taxes until the home is repaired and sold. These costs should be relatively easy to estimate and included in your total repairs estimate list.