How to Make Money on Your Rehab Loan Part 2: Estimating Costs

Find out how to estimate repairs to make money on a rehab loan.

A few weeks ago, we started a series about how to estimate how much money you can expect to make on a rehab loan. Read part 1 here. The quick summary is that you need to compare the selling price of properties that are in the same condition as your potential property. And you need to compare the price of rehabbed properties at the level you are planning on doing. But that’s only the first step in determining whether this is the property for you.

Learn to Estimate Repair Costs to Make Money House Flipping

The second step is to estimate the cost of the repairs. The rule of thumb investors new to house flipping learn is $20 per square foot. This is the number we use for rehabbing an entry-level or mid-level house. We’re not talking about taking something down to the studs. The standard rehab will include new carpet or other flooring, interior and exterior paint, and some landscaping. The kitchen will get new appliances, counters, plumbing and electrical fixtures. The bathroom will get new fixtures, too. You’ll probably be getting new window treatments, doors, and baseboards. A more high-end rehab will cost around $30 per square foot. Remember that if you are going to be doing major work like a new HVAC or roof, you need to add at least $5000 to $8000 to your cost estimate.

As you gain experience in estimating costs for a rehab loan, you won’t have to do all the detail work. However, when you’re starting out, you want to err on the conservative side. The most discouraging thing is to lose money on a real estate deal.

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