Posted by Jackie in Dallas on December 09, 1998 at 08:16:52:
The 50% is the simplified version - however it turns out to be a basic rule.
Your starting figure should always be the “After Repaired Value” - or what the house is worth AFTER it is fixed up to the neighborhood standards. To get this you can either call a realtor and ask for comps in the area (they may not help) - or a better way would be to look for For Sale signs in the neighborhood and call to ask what the house is selling for - a realtor WILL give you this information.
Let’s say the house is worth $100,000.
You then deduct about 30%, then deduct the repairs, then deduct your profit the final number is your maximum offer.
The 30% includes your buyer’s profit and holding costs.
I learned how to Estimate repairs by hanging out with some general contractors - they taught me how! It only cost a few lunches and was well worth the training.
If the house is in the middle to lower income bracket - you can figure about $1 per square foot of the house for a roof replacement, floor replacement, and inside/outside painting. So, if your house is 1500 sf, that’s $1500 for the roof, $1500 for new floor covering, and $1500 for painting - throw in an extra $500 for the oops fund and you are at $5000. It could be more and it could be less - but you are only looking for ballpark numbers. Keep in mind this is not berber carpet - it’s FHA grade. And it’s a standard 20 - 25 year roof - Timberline may cost more.
Next, I would suggest you go to Home Depot or a similar store and get their sales flyer - study it, learn prices - go up and down the aisles. Find out how much will it cost to replace a toilet - not the fancy ones - just a plain toilet - it’s much less than you think. How much will it cost to replace the bathroom medicine cabinet.
Keep in mind that these Home Depot costs do not include the labor to replace it. A “rough” estimate would be to add about 10 - 20% to the costs for labor.
Always look for less expensive alternatives - this is what rehabbers do. For example, instead of including the cost of the light kit that is next to the fancy medicine cabinets ($40) look in the lighting section, they have some really nice brass light strips with 3 -4+ bulbs for about $12.
Before long, you’ll know the prices at Home Depot and where everything is located better than you know prices at the grocery store.
Sonia - I know this all seems very complicated at first. It did to me too. I use to be in the television business and knew nothing about real estate until about 3 years ago. Once you get out there, you’ll hopefully find that it’s really quite easy and most of all FUN.
For me, It sure beats the alternative of working at a JOB. I have a husband and 2 teenagers, plus take care of my parents – this is the only “job” that gives me the flexibility to work when I want and take off when I want to be with my family.