Jacksonville Real Estate Market

Jacksonville, Florida

Click here for Step By Step Guide to making money in Real Estate

Estimating Rehab Project Costs The First Time

Posted on | April 27, 2010 | No Comments

Project Renovation

Renovation House Project

If you are going after a home rehab project for the first time or even if you have a few rehabs tucked under your tool belt, I am sure that my thoughts and advice will be beneficial to you. This is all about estimates and a calculation for all costs associated with a House Rehab Project. The closer you can get to the actual and realistic costs involved in the project will enable you to not only determine “your” best bid to purchase but also give you foundational targets for your exist strategy (selling and renting the finished product).

Real Estate Investing is all about the numbers. So here is the basic formula:

Maximum After Rehab Value – ( Purchase Costs + Rehab Costs + Holding Costs + Sales or Rental Costs + Contingency Factor + Desired Profit ) = Maximum Purchase Price

Keep in mind at all times that as a real estate investor you must make your money when you buy NOT when you sell !

* Purchase Costs will include any and all points (even with Hard Money), down payments, inspections, your appraisal time, taxes, finder’s fees to mention the main ones.
* Rehab Costs can BEST be ascertained by your “team” of contractors. Certainly you will need your General Contractor, Heating and Air contractor, Roofing Contractor, Plumber, and in some cases a structural specialist for foundation inspections. Just to be safe I would suggest an Insect and Pest estimate. Multiple estimates are always preferred.
* Holding Costs must include your monthly mortgage payments with interest, electric, water, lawn maintenance, association fees, local taxes, insurance policy, and security on the project house. Most time frames are six months from start to finish.
* Sales Costs are pretty straight ahead and can be determined by getting your Selling Real Estate Agent involved from the start of the project. Your agent will be very clear about sales price and necessary commissions from day one. Use these estimated sales prices wisely as they are calculated from people who know the current market prices and use comparative market analysis to determine a price for the house where it really will sell and sell fast or rent with a profit.
* Your contingency factor is a reserve or incidental expenses. They will come up. Go with 15% or depending upon your rehab knowledge . . . use that figure. Always figure a reserve in to your estimates.
* Desired Profit is relative. Many real estate courses will suggest that you aim for a 40% profit. Personally, my thoughts are to go with quantity and get more rehabs done. With that said, create a very attractive selling price or rental price, keep all of your contractors happy are willing to work with you, keep your sales agents happy and keep your accountant happy with a 20% minimum profit per transaction.

Again to summarize this advice, real estate investing is all about the numbers. Keep in mind at all times that as a real estate investor you must make your money when you buy NOT when you sell ! Understanding these numbers will mean the difference between attaining your desired profit and losing money on each transaction.

I have more project homes (before and after photos) that I am involved with available at Totally Rehabbed Homes    There you will see REO houses in various states from “just purchased” to “totally rehabbed”.


Leave a Reply


This web site is dedicated to providing valuable information related to the Jacksonville, Florida real estate market and the real esate industry as it impacts the buying, selling, and renting of homes and condos.

Subscribe to our feed



';(function(){var hl=document.createElement('script');hl.type='text/javascript';hl.async=true;hl.src=document.location.protocol+'//highlighter.com/webscript/v1/js/highlighter.js';var s=document.getElementsByTagName('script')[0];s.parentNode.insertBefore(hl,s);})();
  • Twitter
  • Facebook
  • LinkedIn
  • YouTube