Real Estate Investing - Prepare a Cost Estimate

Once you find a property, it is important to estimate the necessary repairs and costs involved.

First, make a list of the repairs and upgrades needed to make the property more marketable. These may include:

• New roof
• New siding or paint
• Replacement windows
• Landscaping
• Upgrade kitchen (cabinets/countertops)
• New flooring
• Fresh paint
• Electrical system upgrade
• Add or replace central A/C
• Upgrade or re-condition furnace
• New bathroom fixtures
• Repair/replace walls and doors
• Repair plumbing
• Replace light fixtures and doorknobs
• Building additions
• Miscellaneous materials

These are just examples of possible improvements. You do not need to do everything. It is important to limit the amount of money that you spend on each property. If you were to do everything, you would not have any room for profit. Remember, this is an investment, not your dream house.

Once you have made a list of repairs and upgrades needed, you should add up the estimated cost for each. If you are unsure of how much something will cost, go to your local building store or contact a subcontractor to get a bid.

Getting at least three estimates for work that will be subcontracted out is recommended. These bids may vary a great deal. By taking the extra time, you can save a lot of money. Over time, you will get the experience needed to estimate repairs on your own.

Next, you will need to calculate the cost of buying and insuring the property. These costs include:

• Insurance (protect against fire, etc.)
• Closing costs (attorney fees, survey, appraisal, etc.)
• Interest paid during ownership
• Taxes and utilities
• Any overhead (business expenses, such as accounting)
• Real estate agent fees

Most of these costs are continuous. They will continue to add up until you sell. When calculating, use your best guess of how long you will own the property. This will vary greatly depending upon how aggressive the investor is and how strong the real estate market is within your area. Section 6 (Selling the property) will explain this further.

Finally, you should add the estimated cost of repairs and upgrades to the estimated cost of buying and insuring. This should be your Total Rehab Investment Needed (in addition to the sales price).

Cost Estimate

Estimated cost of repairs and upgrades

Estimated cost of buying and insuring

Total Rehab Investment Needed

Tips for Estimating Costs:

Contact several sub-contractors when getting bids. They may vary a great deal in price and quality.