If you are going to fix and flip houses, it is very important that you know how to estimate what it will cost to repair the house. This estimate is crucial because knowing how much the repairs will cost you will influence your decision of how much you are willing to pay for the house. If you get the repair estimate wrong, then you won’t know how much to offer because the repair estimate is a key component of the ARV Formula (see below).

THE ARV FORMULA FOR CALCULATING YOUR MAXIMUM OFFER PRICE

The After Repair Value (ARV) of the House
Multiplied By 65%
Less The Repair Estimate
= Your Maximum Offer Price (the most you should pay to buy the house)

NEVER OFFER MORE THAN THE MAXIMUM OFFER PRICE

If you want to be profitable as a rehabber, never offer more than the Maximum Offer Price using the above formula.

REPAIR ESTIMATES

The repair estimate is made up of two components:

Material Costs (the cost of purchasing the materials)
Labor Costs (the cost of the contractor or handyman)

At our Fixing and Flipping Houses Boot Camp, we take students to Home Depot to show them the true costs of materials. We identify the key components of materials that are used in our rehab projects. We go aisle by aisle showing our students the type of flooring we use (ceramic tile and laminate) and the cost of key components like drywall, paint, kitchen cabinets, sinks, countertops, backsplashes, bathrooms, shower doors, toilets, vanities, faucets etc.

It is important to understand the materials cost and how much each of these raw materials components cost to purchase. We also teach them how to estimate the costs for items like kitchen cabinets, tile, laminate and paint based on the interior square footage of a house. It is very important for you to understand the true cost of materials if you are planning on rehabbing a house.

The second component is the labor cost. How much is the contractor or handyman charging you for the labor to do the work like painting the houses, laying tile, installing cabinets etc. Are they quoting you by the hour or by the job? When they give you a quote are they including materials or just quoting labor? This becomes very important because you need to know how long it will take to complete the job and how much the labor will cost. You also need to make sure you are highlighting exactly which materials you would like to use if they are purchasing the materials.

If you don’t, then they will charge you by the job. Since their labor cost is fixed the way they will make a greater profit is by using inferior materials like cheaper tile, cheaper laminate, cheaper cabinets etc. If you don’t want this to happen then you need to specify exactly which tile you want to use, which laminate flooring you want to use, which cabinets you want to use.

You need to be meticulous with the details all the way down to the finer details like which faucets you are using. That is why I recommend to my students that they go to Home Depot with a note pad and pen and take pictures of each component that they want to use in a rehab and to make a note of the Home Depot SKU number (to look it up online) and also the cost per square foot and cost of each item.

Keep in mind color themes that you want to use on the house. We break down our rehabs into brown color themes and grey color themes.

Our brown color theme is dark wood laminate flooring, with beige ceramic tile, dark wood cabinets, brown granite countertops, and a very light beige paint color. This color them is warm and inviting and makes the house feel very cozy.

However more and more people prefer the modern look of the grey color theme. Our grey color them is grey laminate flooring, white cabinets, white quartz countertops, and a very light grey paint. When you look at the grey color them everything is white, grey and silver. When you use stainless steel appliances this comes out as a very clean modern look which many buyers today prefer.

BEGINNERS MISTAKES

Most beginners find a cheap handyman and ask them how much to remodel the house. Then they leave it up to the handyman to pick materials, color etc. If you do this your handyman will be buying close out tile and you will have horrible colors and terrible materials. They will rush to complete the job to get their check. And you will not like the end result. Give them clear directions. It is better for you to pick the materials yourself and to pay for the materials and for you to come to an agreement with them on what the labor will cost and how long it will take. Structure the deal so there is a timeline and a completion date.

If you want to learn how to fix and flip houses, and how to buy the right house at the right price then you should attend the Fixing and Flipping Houses Boot Camp.

If you want to learn how to fix up houses to turn them into Airbnb’s then do not miss the Airbnb and Short Term Rental Boot Camp, which is coming up.

If you would like to learn more about my real estate training program call (561) 948-2127 and speak to one of my Student Support Managers. To apply for my real estate training program please complete an application at https://www.lexlevinrad.com/application