The Simple Way to Build Accurate Rehab Budgets

Dan Austin: [0:01] Hey there. Welcome back to another episode of the collecting keys podcast. If you're new here, this is the podcast where we teach you how to make massive income, not just passive income. Because if you know anything about real estate or you're just getting into it or you've been watching the market lately, you know right now it's very, very challenging to build a lot of passive income through rental properties and real estate ownership, at least enough to replace your salary if you're making any meaningful wage. But instead, if you can lock in and understand how to do direct to seller marketing, how to find your own deals, how to wholesale, how to flip projects, you can make quite a bit of money in just a short period of time. I mean, if you think about it, if you go and flip a property, you can underwrite a deal, and most people I know buying average, you know, home price, you know, markets, you know, say that $3.50 range, you know, they wanna make $30 on a flip. That's pretty attainable, and if you do four of those flips a year, which is super easy, that's a $120,000 in gross income. So you can certainly make 6 figures doing a very little actual deal flow in this business. Now you throw in a wholesale operation where you're wholesaling some of the tougher flips or some of the bigger projects you wanna do, making $1,012,000 dollar bumps. You can really put together a multi 6 figure business where you're golfing three days a week, and you're having time to spend with your family.

Dan Austin: [1:22] Or you can do what Mike and I are doing and try to scale it as big as you can freaking take it. But anyways, in our scale community, which if you're not familiar with it, go to collectingkeys.com/scale. We've had quite a few people reach out to me or just, you know, posting in our Slack group about, like, checking their numbers and how to how to analyze deals, and mostly around rehabs, especially for newer folks that's that have never done a rehab. They've never flipped a house. They've never really done anything around construction. They're second guessing themselves, and I think that's okay. You honestly don't need to have swung a hammer before. You don't need to have, like, done a bunch of renovations or been a construction person in your past to do this. You just need to follow a few simple fundamentals, and I'm gonna share those with you over the next few minutes, and I hope this gets out to you all, and it really drives value and makes it so you can quickly look at deals, and feel super confident in how you actually come up with renovation cost. And I can tell you this works, because not only do I do this here in Spokane, but I've done this in remote markets where we operate and have been able to flip houses remotely, never even being in the market, never even seeing the house, but understanding what needs to get done just from photos and working with contractors and budgeting the costs appropriately.

Dan Austin: [2:40] So the first thing I always tell people is you need to have a calculator. In our scale community, we give everybody our collecting keys offer calculator, which has the really high level line items for things that you're going to have to renovate. So what you do is you end up going, you get property photos, whether you walk the property or you pay somebody to go walk the property, pay them $75. They go walk the property, they take pictures of everything for you, and then you just scroll through the pictures. And I've built hundreds of rehab budgets doing this and executed on dozens and dozens and probably well over a 100 at this point now on the renovation cost side of things. And so you look at those photos, and you're really just looking at, okay, what do I need to make this house look like? So I start out saying, what are my comparables? What am I going to try to make this house look like? Are they all gray carpet, white cabinets, gray countertops, super basic flip houses that you see, everything you can buy off of a Home Depot shelf, or is it all more high end, or is it I just need to make this thing look good and it's gonna sell. You know, it doesn't have to have upgraded everything.

Dan Austin: [3:40] Look at what your comps are telling you. So then as you're going through your photos, say, well, I need to fix that because it's clearly broken. I need to paint this because this is what the comps are saying. All of my comps have some light gray LVP in it with, you know, one by four white trim around the baseboards. Those are the things you're looking at and building out that list. So then you at least know kind of what you have to do. Now everybody gets scared. What about all the unknowns? What's behind the walls? Well, lot of times, you don't have to open up the walls, so you don't have to figure out what's behind it. There is no gotchas, because you don't touch those parts of the house. But as you're looking through these, things you should be looking for are the bigger, more expensive items like the HVAC. That's a 7 to $10,000 bump if you need to replace that, which Mike and I have had to do. Roofs, those can be expensive depending on the size. You know, it's a single expense, you know, depending on your market, might be 8,000 or 12,000 or where we're at, it's probably 15,000 more like that these days. You wanna look for electrical to make sure it has like a decently upgraded panel. It's not fuses. It's not knob and tube because those are just those get really tough to sell, especially to new home buyers. When they see that knob and tube, they're always like, oh, we don't want that. Our inspector said we can't.

Dan Austin: [4:50] We it'll kill us if we have it. So, you know, it just scares people. So you wanna look for those big gotchas. I also like to look at windows because some of these these old crappy single pane wooden windows, they just look like shit, and you gotta end up replacing them. And windows can if you go to a window company, it can cost you a lot. If you get your contractor to do it, you could be, you know, 500 to $1,000 a window just depending on on what type of window they're replacing, how big it is, and how many, and all that sort of stuff. And then some of the stuff you just can't see and you're not gonna know, but if you have signs like the foundation, the roof, the mechanicals that they look aging and are getting old, get a second opinion. That's why you have a ten, fifteen day contingency on your contracts. Go in there, have somebody take a look at it, and give you an idea. And if anything, you're gonna learn something. Say you have to pay $300 for somebody to go look at it, you know, a foundation inspector to go look at it. And they say, yep. This is why it's bad, or this is why it's good. Now you've just educated yourself for $300 to understand foundations in your area and what you need to look for in photos. Okay?

Dan Austin: [5:49] As opposed to getting under contract, going to flip this thing, and finding out that a foundation repair is $12,000. You'd rather find that out beforehand, before you even ever get a property in contract, than when you're actually flipping it, and those are where you hear the horror stories. So do a little due diligence, realize you have to pay for your education, and sometimes you need to do those inspections to teach yourself and understand what you need to be looking out for. But beyond that, as you scroll through, you've got your pictures, you've looked through, you've understood what kinda needs to be done. Now, the next thing to do is like, okay, I know the flooring needs to get replaced. How do I figure out what that's gonna cost? Generally speaking, you should just get a general cost per square foot. So say, you know, on the county assessor website, you know, it says the house is a three bed, one bath, single floor, single story home. You're gonna turn this into a rental property or you flip it, whatever. If you wanna do LVP, which I like to do throughout the whole house with no transitions, you could just say, well, it's roughly a thousand square feet. Now, go to a flooring store. There's usually some investor friendly ones, you know, the ones that are in the nice part of town where you see people pulling up in BMWs and Range Rovers, don't go to those ones. Go to the one that's on this corner of the busy street that's like Floors and More or something like that. Go in there and say, hey. Do you guys have a lot of investors, like flippers and stuff that come here and buy flooring?

Dan Austin: [7:02] Like, absolutely. Like, awesome. Well, here's what I got going on. I wanna do a thousand square feet of LVP. It's all on one floor. What would be a great, like, investor grade rental property flippers style of LVP? Awesome. Get that price for them per square foot, and then ask them, hey, do you have any flooring guys that work with investors here that you would refer to? They always have somebody they refer people to. They probably have five or six people right then and there that they'll refer you. Call every single one of those people and ask them to give you a quote to install that LVP and what it's gonna cost per square foot or however they wanna bid it. Right? Now you literally just figure out the materials and the labor associated with doing flooring. Go to your paint store. I go to Sherwin Williams. Do the same thing. Hey. Hey. I'm gonna try to do this. I'm flipping the house. It doesn't have to be, like, high end, but I want it to be good. I want my contractor to enjoy putting it on. What type of paint are all your flipping and landlords buying? Like, what colors and what type of sheens? What type, like, quality of paint? All that sort of stuff. And then ask ask them once they tell you that, hey. Do you have any painters that work with real estate investors? And guess what? They're gonna say, absolutely.

Dan Austin: [8:09] They're gonna give you five guys' names. Call all five of them. Get those numbers from them. Now do you have materials and you have labor costs for painting? Do the same thing with your roofer. Do the same thing with the HVAC guy. Say, hey. You know, go to your go to your HVAC guy, call him up, and you got a picture of the HVAC from your property. Say, hey. This is what I have. I need to replace it. What is that gonna run me? And they're gonna say, well, you know, it might it depends. And you're like, okay. Well, cool. Like, what is, like, the worst case scenario and best case scenario? They're gonna say, well, if it's just electric furnace, it's gonna be 3,500. If it's a like for like, you don't have to do anything to the ducting or anything like that. And so you're gonna start learning these things. The other thing I tell people, if you haven't even done this before, instead of having the photos from a property you just walked and you wanna teach yourself, you live somewhere. Right? Whether it's your apartment or your house, take measurements, and then go to these locations and ask people like, hey, what would it cost? Call contractors, have them give you an estimate to replace your cabinets in your kitchen. Just see what they say. And what you're gonna do is as you're going to these real estate beat ups and you're in these Facebook groups, you're gonna start asking people like, hey.

Dan Austin: [9:11] Who's the investor friendly person? And that is code word for who is the cheap person, likely an immigrant or I don't know. In our market, it's crackheads, and we have a lot of Russians that do a lot of the work, and that's fine. Right? And they do great job a great job for us, and they usually come in at low cost. Why? I don't know. Maybe it's because they're not reporting their income. I don't really ask them that question. But you find locally what the culture is and who you're able to hire in that investor grade stuff, and they will come in and do a great job for you. They're fast, they're efficient, and they're cost effective. Those are the people you wanna work with, but bring them over to your house, get them to give you estimates. You don't have to tell them that you're not gonna actually do it, just learn. You're trying to educate yourself. If you have to throw them a couple bones, like, throw them a $100, $200 to do it, do it too. You're just educating yourself on what these things cost, and you have to do it at some point. Nothing's free. The other thing I do, and this is just the last tip when you get really detailed, when we're full steam ahead and we're working on a ton of projects, I actually have a spreadsheet that is generic. Right? So if I wanna do a bathroom upgrade, I usually buy most stuff from Home Depot.

Dan Austin: [10:13] So I have options for a vanity. Right? 30 inch vanity, 36 inch vanity, 42 inch vanity. It's a standard price range that I'm gonna stick to for most of my flips. So I'm gonna be able to get that off the shelf at Home Depot. I'm also going to look at what a bathtub insert costs, what a toilet costs, what a mirror costs, what a three light versus four light vanity light costs, what the fan costs. I get everything in there. I'll get the SKU numbers so that it's all linked in a spreadsheet, and I'll all I have to do is just put quantities for things I need, and boom. It spits out my materials budget. So now you can go through that as you're dialing in a super detailed budget. Like, just go into your bathroom at home and be like, what do I need to buy in here to actually upgrade this if I wanted to do it? That's your materials cost. Now when you go and get a quote from a contractor, you will know what the materials costs are, and then they are gonna give you the labor costs associated with those materials. Now they might put material costs in there, and you can compare and be like, why is this guy's material like a thousand dollars more than mine? And then ask him. And if he's like, well, it's because I only use these materials, and you're gonna say, well, those are probably not the materials I want, and you might not be the guy for me. So you can take a bathroom that a normal contractor might charge you $12 for and get it down to, like, $4 when you find the right type of contractor that does investor friendly billing, if you know what I mean. So those are just some of the tips I use and I give people to coming up with the the best budget that you can. It really is quite simple, but guess what? You gotta communicate with people.

Dan Austin: [11:42] You gotta be a problem solver. You know what a house takes to put together. Fundamentally, you could walk around your house or your apartment and look at things that need to get repaired. You do not have to be the person to do those work or even know how to do it. I'll tell you what, I do not know how to put a roof on, but I've paid roofers to do dozens of roofs for me, and I know exactly how they bid it. I know what they what their language is because I've talked to them, and I've worked with them for several years now. So you could do all this by just communicating. I hope you found this helpful. I will stop ranting there. We like to keep these Friday episodes short. If you wanna know more about this, hit me up on Instagram at investor man dan. If you wanna jump into our scale community and learn how to do this with a bunch of other people kicking ass out there and taking names, go to collectingkeys.com/scale. We love to have you. So if you're interested, hit us up, and if not, I will see you all next week.