Real Estate Lingo: What is Rehab Cost?

Today, we’re diving into a critical topic for all real estate investors: rehab costs. If you’ve been following our Investor Lingo series, you know we’ve already covered key concepts like ARV (After Repair Value), MAO (Maximum Allowable Offer), and carrying costs. Today, we’re focusing on rehab costs—what they are and how to estimate them effectively.

What Are Rehab Costs?

In simple terms, rehab costs refer to the total expenses associated with repairing and upgrading a property to make it market-ready. These are the costs you’ll incur to transform a fixer-upper into a profitable investment, whether you’re flipping it or holding it for rental income.

How to Estimate Rehab Costs

The most accurate way to estimate rehab costs is by taking a contractor with you to the property you plan to rehab. They can give you a professional assessment of what needs to be done and how much it will cost. This may seem like common sense, but there’s a catch: when you find a great deal, you often have to act quickly before someone else snatches it up. You may not have time to arrange for a contractor to walk through the property before making an offer.

Pro Tip: Do Your Homework

So, how do you make informed offers on properties without the luxury of time? Start by researching rehab costs in your area. Even if you don’t end up buying a particular property, you can still request quotes from contractors for similar jobs. Over time, you’ll compile a mental database of typical costs. For example, you’ll learn how much a contractor charges per window, per square foot of flooring, or for a complete bathroom remodel. With this knowledge, you can quickly estimate the rehab costs for any property based on its condition.

Practice Makes Perfect

The more you study your craft, the better you’ll become at estimating rehab costs on the fly. Whether it’s assessing the need for a new roof, HVAC system, or kitchen renovation, understanding these costs will make you a smarter investor. Remember, the goal isn’t to guess blindly but to make educated estimates that you can refine once you have the property under contract.

When you do secure a property, you’ll typically have some time to bring in your contractor for a final, detailed bid. This will allow you to compare your initial estimate with the contractor’s numbers and see how close you were. Over time, this practice will make you a more confident and accurate investor.

Final Thoughts

Estimating rehab costs can seem daunting at first, but with practice and preparation, you’ll develop a solid understanding of what to expect. By learning to quickly assess repair needs and their associated costs, you’ll be able to make smarter offers and improve your profitability as an investor.

That’s it for today’s post! If you have any questions or need further advice, feel free to reach out. Stay tuned for more tips and insights from the Bradley Real Estate Group.