Whether you plan to flip a house or buy and hold real estate, knowing rehab costs to fix a property will help you make the best portfolio choices. After all, nobody wants to get into real estate investing with properties that turn into a money pit.
A real estate investor should know how much risk they’re willing to take and how many repairs they can afford. This enables investors to make wise choices about renovation projects. Whether it’s a coat of paint, new kitchen cabinets, or hardwood floors, every choice matters for your bottom line. Here are some ways you can estimate the rehab costs.
Rehab Costs for Flipping Houses
When you use rehab costs to determine the returns for a fix and flip investment, you can calculate your potential like this:
- Profit: = Future Sale Price – (Cost to purchase house + Rehab costs + Utilities//taxes/all other related costs)
Since you must rehab a house and sell it quickly to maximize profit, there is no need to calculate its net present value. What’s more important is its short-term cash flow. However, you should also figure in the standard fees that are included in home sales, such as commissions, closing costs, and other itemized fixer-upper expenses like the cost of local contractors. To get a more comprehensive idea of what to expect, use this free house-flipping calculator.
Rehab Costs for Buy and Hold Investments
For buy-and-hold investments, you must figure out their net present value since a dollar today won’t be worth the same tomorrow. It will give you the most realistic prediction of what your home will be worth and how much cash flow it can earn you after you hold it for X amount of years. Here is the general formula:
- Profit = (Future sale price + Anticipated rent earned over holding time) – (cost to purchase house + Initial rehab costs + Fees/Taxes/Upkeep for entire holding period)
This formula is fundamental and may not include other expenses and factors related to your property, such as HOA fees and payroll. You will get the most accurate prediction of future profits by including as much information as possible. Knowing how to estimate repair costs will help you greatly in this venture.
To get a quick idea of how much your investment can make as a rental, use this net present value calculator.
How to Estimate Rehab Costs: Your Key to Wise Acquisitions
It would help if you kept many factors in mind to determine a property’s profitability. Location is a big one, but so is the house’s condition. If you plan to sell it quickly, you must also be sure that its market value after repairs is high enough to offset the costs of all rehab projects. Every job is different. Here are some factors that influence how much you’ll pay:
- The scope of the work.
- Quality of materials.
- Labor costs of general contractor.
- The difficulty of the job.
- Any demolition or mass junk removal required before your project begins.
- Professional cleaning post project.
You can adjust these typical rehab costs with these factors to get a more accurate picture of what you will need to pay. For example, a hardwood floor replacement is going to cost more than using laminate faux wood flooring.
ROI: Another Consideration
Speaking of material choices, you can also get technical about how much the improvement can raise the value of your property. Higher property values = higher appraised value, which can increase your bottom line when you list on the open market. However, be sure not to overdo the renovations if comparable properties do not have the same bells and whistles. For instance, installing a new garage door has an excellent ROI, while in-ground pools or room additions typically offer lower returns. With each investment property, there will be a perfect medium between renovation costs and reward. Your judgement will get better each time you flip houses.
Typical Rehab Costs
The great thing about estimating rehab costs is that you’ll get better at it the more you do it. If you plan on using the help of contractors, expect to factor in the cost of labor with materials and the upkeep fees, such as taxes, utilities, insurance, and other related costs during the rehab phase too. The following figures are rough estimates of costs regarding functional and cosmetic rehabs.
- Average Cost: Between $400 – $550 per sf.
A bad roof is one of the most common obstacles to a standard sale. Stringent homeowners insurance standards make it hard for homes with old roofs to obtain financing from a lender, which is a major loss for open market sales. This is why an old roof is a typical part of the distressed property package. Thankfully, NAR studies affirm that this project has an incredible 100% ROI, so it’s worth your time, especially when it allows you to flip it and sell on the open market for top dollar.
- Average Cost: $3.30- $6.70 per sf for vinyl siding.
If your investment has old siding like clapboard or anything with asbestos, it should be replaced to be up to market expectations. For all replacements, you should factor in the costs to remove and safely dispose of these materials. When it comes to buy-and-hold investments, you can power wash older siding if it still has some life in it – then replace it at a later date. Check the house’s comps to see what standards you should meet before proceeding.
- Average Costs: Between $200 and $1,800 per window.
New windows improve the appearance and energy efficiency of your home. Standard-sized windows are easier and cheaper to replace than custom sizes. To get the most accurate estimate of what you’ll pay, it’s best to measure your windows and get a quote from a contractor. Your rehab estimate will heavily depend on the quality of the windows, size, number of replacements needed, and the labor costs.
4. Exterior Doors
- Average Cost: $471- $1,601 per door
Doors are essential parts of the home that increase security and curb appeal. A basic slab door can be just a few hundred dollars, while a designer-grade door or anything made out of steel is going to be in the thousands range. Thankfully, interior doors are far more affordable, starting at around $100 per unit, and they can be an easy DIY project to save on labor costs.
5. Interior Paint
- Average Cost: $3.50 per SF.
If you use good-quality paint and primer, the average cost to paint the interior of a 1,000-square-foot home would be around $3,500. However, the costs will be lower if you decide to use economy paint. For fix and flips, it’s best to use good paint since the buyer would be looking for a long-term property. However, with rentals, it may be best to get more affordable coat of paint since this task is usually part of the rent turnover process as regular maintenance.
- Average Cost: $2 to $7 per SF for vinyl plank flooring.
The typical go-to material for rehab floors is some durable vinyl plank flooring, which averages $2,286 per project. However, the cost can be lower or higher depending on the quality of the material. For example, luxury vinyl flooring could cost around $10 per square foot. Natural hardwood floors can cost significantly more at $15 per square foot.
Other options include ceramic tile, faux stone, carpet, and laminate. Depending on your timeline and budget, any of these options will improve the look of an outdated property. Modern materials like laminate can be made to look almost like natural hardwoods, offering the same beautiful look but at a fraction of the cost of the authentic material.
Whenever you venture into significant renovations that require gutting cabinetry, knocking out walls, mold remediation, and other large tasks like extensive landscaping, you will spend more money and time on your rehab property. You must factor in utility payments, taxes, and insurance costs for the entire time you are the owner. You pay more taxes per square foot of house, so the size of the investment property should also come into consideration.
While the projects mentioned in the list above can take a day or up to a week to complete, tasks like kitchen renovations, bathroom remodeling, new drywall, or foundation work can take some time. Total HVAC replacement and ductwork are also time-consuming and expensive. However, if you are confident that your rehab will gain significant value and marketability after the improvements, these projects will be worth your time. For instance, a new water heater boosts buyer confidence, and do new appliances.
Find Rehab Properties with Marketplace Homes
When you work closely with a real estate agent from Marketplace Homes, you can get exclusive access to off-market properties and get the best advice on strategic acquisitions. We’ll talk about the property’s market, square footage, its comps, and other factors that can make it a good investment.
Also, since we partner with investors and builders, we have even more insights on what’s available on and off-market compared to the typical real estate brokerage. Contact us today to discover why our connections and real estate solutions are some of the best in the industry!
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.