Thursday, November 19, 2009
Investor Tip on Estimating Repair Costs
The next tip in our investor series is to avoid the common error of underestimating the need for and cost of repairs. One can never be pretty enough and one can never have enough money set aside for rental repairs. A good rule to follow is always considering the worst case scenario. When you see a soft spot in the floor, even before you consider the cost of replacing the floor board, consider that the joists underneath may be rotten as well. Rarely will you see a fix-over come in under budget. When you are discussing costs of repair with a potential seller, a good strategy is to double it. When you underestimate repair budget and overestimate what a great deal you believe your first big purchase to be, you have a recipe for disaster, and one many enthusiastic newbie investors fall into.When going into a sale, underestimate what you believe the value of the house is, and overestimate what you believe it will cost to rehab it. With this set of expectations, you will more often be pleasantly surprised rather than bankrupt when all is said and done.This mindset is also critical when dealing with contractors discussing the cost of their services. Never settle for an hourly rate; you will almost always spend far more than the original estimate. Get specifics, and be sure to get the contractor's worst case scenario numbers. Set a timeframe, and get it in writing. In fact, if they tell you the job will take 2 weeks, include in your contract the deadline date, as well as a daily charge to them for each day over deadline. This helps keep everyone on a realistic schedule.So remember, prepare for the worst, get everything in writing, and you will be purchasing many sequels to that first sale.