Construction Estimation | Your numbers have to be right, and there are several ways to make sure they are

During this session, we will talk about Construction Estimation | Your numbers have to be right, and there are several ways to make sure they are. The video is below and the notes are underneath the video. This is Week 6 of 10 from the Wholesale Real Estate Training Program. Make sure you bookmark the Wholesale Training Resource Center.

VIDEO

NOTES

WEEK SIX NOTES AND ACTION ITEMS

Welcome back to week 6 of the Wholesaling in Real Estate series! This session focuses on construction estimation, and Tim walks listeners through the process on a property that he has been working on acquiring for the purposes of fixing and flipping. Tim has got this estimation process down to a science and he outlines the nitty gritty of what you can expect in your own wholesaling and rehabbing transactions. He explains why every property and every deal is unique based on the house’s characteristics and how to run the numbers to determine if it would be better for you to wholesale the property or flip it yourself.

• The basics
  • 80% flip rule on good quality properties
  • Generally count on 10% closing and carrying costs
  • Wholesaling
    • Money now, no market risk
  • Rehabbing
    • More money long-term if you can sell quickly
• Playing the numbers game in a people industry
  • 5F’s:
    • Family
    • Financial
    • Funeral
    • Fumigation
    • Fun
  • As a buyer, be reliable and timely
• Running the numbers
  • Determine what to offer
    • Objective: buy real estate for a price where you can sell it for a profit
    • Have a strategy rather than throwing numbers out there to see what will stick
• Determining estimated rehab costs
  • Rules of thumb:
    • 1975-present construction: start at $10/ft
    • 1955-1975 construction: start at $12/ft
    • Pre-1955 construction: start at $14/ft
    • Look at the comps
      • How are they updated compared to this property?
      • Be able to look at the descriptions and understand what the property might need
  • Increases:
    • Foundation: + $3/ft
    • Full roof replacement: + $3/ft (+ $2 more for wood shake or redeck)
    • Steep roof: +$2/ft on top of $3/foot (two story and steep stays at $3/ft)

• Plumbing repairs below slab: + $4/foot
  • Decreases:
    • House has been updated (not original): -$2/ft -$4/ft
  • Long hand repairs:
    • Paint: $2/ft
    • Flooring: $3/ft
    • Appliances: $1,000
    • Roof: $4/ft ($5 with re-deck)
    • Hardware: $1/ft
    • Plumbing fixtures: $.75/ft
    • Electric fixtures: $.75/ft
    • Electrical minor: $1/ft
    • Electrical major: $3/ft
    • Countertops kitchen: $.75/ft –Granite: $3/ft
    • New cabinets kitchen: $1.50/ft
    • Double vanity with tops: $500
    • Foundation: $3/ft
    • Under slab leak: $4/ft
    • Sheetrock/Tape, bed and texture: $.50/ft
    • HVAC: Condenser: $1.50/ft; Full system: $3/ft
    • Bathroom redo: $10/ft of bathroom footage
    • Replace all windows: $2/ft
    • Miscellaneous budget: $1/ft
• After-repair value (ARV)
  • Start at the average of $1/ft of sold comps times the living square feet
  • Considerations (White elephant issues) if there are no like-kind assets:
    • Vacant, suspicious, and/or abandoned houses within view of driveway: -5%
    • Dangerous dogs in neighborhood: -5%
    • On corner of busy street: -7%
    • On busy street: -10%
    • High tension power lines: -10%
    • Backs to commercial (no brick wall): -10%
    • Backs to commercial (brick wall): -5%
    • High DOM: -5%
    • Seller contributions?
• How to make offers
  • % of ARV (LTV hard money mindset)
  • Profit approach (targeting rehabbers)
  • ROI approach (targeting landlords)
• Examples
  • Wholesaling

• Use the offer calculating worksheet
  • Basic offer: 70%
    • Max offer: 80%
    • Alter based on your expenses
  • Retailing
    • Hard money vs. cash buyer
      • Lender fees, cost of capital
      • Lender formulas limit borrowers
      • There is a high ROI either way
    • Leased comps
      • Descriptions, lot size, updates
      • Highest and best use for the asset
      • If the lease amount is 1% or more of the value, it might be worth wholesale to the landlord
      • Use the rental calculator
  • Final thoughts
    • Easy and lazy aren’t always worth it
    • Balance your constraints with your margins
      • Higher value houses don’t cash flow as well
• Longhand repairs on the Rowlett house
  • Reference the episode for punch list and numbers
    • Foundation, paint, fixtures, kitchen layout/appliances, electrical, and windows
  • Don’t upgrade your doors unless you have to
  • This is your investment, not your home
  • The comps for this property have not been remodeled

Resources

Online Sales Training https://www.sandler.com/
http://i-rei.com/ (Comp provider)

tim@timherriage.com                                                                   https://twitter.com/timherriage                                                                                 https://www.instagram.com/timherriage/
https://www.youtube.com/c/TimHerriage
https://www.facebook.com/timherriage/

BOOKS

Rich Dad Poor Dad

Richest Man In Babylon

Think And Grow Rich

Start with Why

The Art of War

NOTES AND SLIDES