Use Scope of Work Template to Estimate Rehab Costs
Every successful rehabber will have their own framework for evaluating the scope of a possible deal and estimating rehabbing costs. The framework involves breaking up the property into functional components and then evaluating each of these individually and in detail. To be a successful real estate investor and flipper you should understand what the project’s “Scope of Work” (SOW) is, and how to plan for it based on its location. Keeping your own scope of work template helps you keep it all organized job to job.
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A “Scope of Work” basically just gives an overall picture of what needs to be done to complete the project for you and your Contractor. Within the scope of work is each item that needs to be repaired or created, what it will take to complete it, and the cost of each item to do so. Within each of these major components there are many tasks and subtasks that address the numerous rehab items that may need to be performed on each component as part of a multi-faceted property renovation. Each of these tasks and sub-tasks will make up the scope of work (SOW) for the renovation and the cost estimate of each task and sub-tasks will contribute to the overall cost estimate for the property and what your ARV (After Repaired Value) of your property will be.
Keep in mind that there may be some SOW tasks unique to your area, property type and situation. The cost of each task will vary based on a number of factors. It can be determined on quality, if you choose to hire contractors who are or aren’t licensed or insured. If you live in an area where real estate labor is overly depressed or in an area where real estate costs are sky high for example. Some parts of Florida, installing a tile floor might cost $8 per square foot, and others $4 per square foot. Location affects the cost of a rehab in most cases. Both material and labor prices are going to be based on where you live. For example, the cost of an electrician in Boca Raton, FL (Palm Beach County) may be 30% higher than in Belleville, FL (Ocala County)
The components for your SOW should include Roofing, HVAC, Concrete, Foundation, Plumbing, Electrical, Flooring, Permits, Mold, there are many more, but these are some to consider when rehabbing. The more detailed your SOW is, the easier it will be to stay on target with your budget.
As a rehabber, having an established set of Contractors to do the work for you on each flip helps take the “price wobble” out of your rehab estimates. The reason is when you use different contractors from project to project, similar Contractors may charge different prices based on their skill level, how busy they are, not to mention the fact that their negotiating skills can vary.
Another price variance project to project can be that the level of finishes may differ significantly. If you buy a shower head from Home Depot for $45 or one from a boutique hardware store who import from Italy for $175, this could make a considerable overall cost difference. Each project will call for a different level of materials and a skilled house flipper and rehabber needs to know what level of project they are working on and what level of materials to buy to get maximum profit.
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Time of year may affect the price you pay your labor. If you need a skilled HVAC contractor in the heat of the Florida summer to run some duct work, you will very quickly see this affect. You can expect to pay much higher rates in the summer than in the months of November or December in Florida, where demand is traditionally lower.
Building codes may also be a price factor due to difference in bad weather risks especially with Florida Hurricanes. You may find the building codes in your area stricter because of stringent building code requirements in your municipality. These strict codes can translate to higher building and repair costs for your flip project.
While these are some of the bigger factors that will affect the prices you pay for your rehab, there are may other factors to take into consideration too. By educating yourself through PropertyOnion.com, you will pick up more tips to get the best Foreclosure property or Tax Deed deal for your potential off market property purchase. We hope you can see how valuable a Scope of Work template can be and we you use ours and modify it to what is best suited to your own workflow.