One of the BIGGEST mistakes I see made by most real estate investors when buying a wholesale property is Underestimating Repairs .
As a real estate investor, you should always run the numbers. No matter what you're heart is telling you about a particular property, the numbers are the numbers. If you're estimating repairs and you're not a licensed contractor or builder, I suggest you be conservative on your repair estimates!
What does being conservative mean? Good question. I recommend whatever number you determine the repairs are going to cost - double it. Add that cushion so you don't get surprised when the true costs come in higher than you thought. I recommend you do the same for the time frames your contractors are telling you it'll take to get the work done. If they say 2 weeks, you make it three. Adding a bit of slop will only help save money and headaches in the future!
As you're walking through a property, use a repair checklist to help keep track of everything that needs work. Then, when you're running your numbers you can refer back to your checklist and better estimate the repairs needed. Talk with other investors at your Real Estate Investors Association (REIA) to determine a good starting point for repairs in your area. I usually start with $3000 per repair on 1500 square foot houses.
Ie... Carpet = $3000 Paint = $3000 Kitchen Cabinets/Counter = $3000 Bathroom = $3000
You get the picture. If the house is bigger, increase the numbers. Remember, these are just estimates you'll use to come up with your Maximum Allowable Offer (MAO).
When you have your contractors bid on the job, I recommend getting multiple bids and comparing them. You'll want to get at least 3 bids from 3 different contractors. This will give you a good handle on the actual cost of the repairs. Remember to take into account the estimated time to complete the repairs.
When you decide on a contractor, make sure to get everything in writing. If not, you may find out that they'll try to take advantage of you.
To avoid Underestimating Repairs, make sure you estimate conservatively, use a checklist and get multiple bids to compare. Decide which contractor to go with and manage them to stay on time and on budget. Good luck and Happy Investing!
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