Many a would-be real estate flipper has underestimated renovation costs. All too often, I receive an e-mail from someone saying they have a great deal for me on a home that only needs about $10,000 in fix up.
I normally send those right to junk mail because in most cases $10,000 doesn’t even buy new carpet and paint. Rosy renovation estimates are probably the No. 1 killer of real estate flippers. Before you dive into the first flip project or even that home remodeling project, do some homework and get real about the material and labor costs.
“I don’t need to know the labor costs,” says the do-it-yourselfer. You’d still better have a realistic estimate on time. The labor costs may not hit your wallet but they will certainly hit your lower back, knees and possibly personal life.
First sit down and list out all the materials you’ll need. Then walk through each task of the renovation project and estimate your labor hours. Take those time estimates and see how they fit into your schedule if you’re doing the job yourself. And be realistic, most of us are not accustomed to hard labor.
If your body is not used to setting tile, you might be feeling the burn come day two. Having your kitchen torn apart for three plus weeks might come with a greater personal price than you’re willing to bear. And, as for flippers, time is money. The longer it takes to renovate a home, the greater the opportunity costs. Most of us have a limited number of homes we can hold, so every day you spend renovating is a day you cannot be accumulating. Missing out on one great deal can be far more costly than contracting out your renovations.
As an example, let’s say you’re going to renovate a 5-foot-by-7-foot bathroom. It will be a basic bathroom with ceramic tile floor and tub surround. Including the floor, the tub surround and an extra 10 percent for waste, there will be about 100 square feet of tile. With a quick trip to Home Depot’s Web site, I came up with the following costs:
●tile at $2 a square foot: $200
●cement backer board, backer board screws, mortar, grout: $150
● rough plumbing materials: $100
●exhaust fan: $30
●30-inch vanity with mirror: $199 (on sale)
●free standing, five-foot tub: $250
●towel bar, toilet paper holder, misc: $30
●light fixture: $50
●shower head/faucet: $50
● paint and primer: $50
●total materials: $1,223 (not including tax).
All of these prices are on the low end. You can easily select fixtures and materials that are twice the costs I’ve listed here, so be careful. It’s easy to say you’re only going to spend $50 for a light fixture but when you get into the store, that $100 light fixture is going to look much better. So be realistic in your budget. It’s also a good idea to add 10 percent to your material costs to adjust for missed items, breakage and mistakes.
●demolition: three hours
●rough plumbing: four hours
●install cement board: five hours
●set tile: 10 hours
●grout: four hours
●finish plumbing: six hours
●paint: four hours
●caulking, cleaning, installing towel bars, etc.: three hours
●total time estimate: 39 hours.
Most contractors are probably going to estimate around 50 hours for a project like this and they’ll probably charge $35 to $50 per labor hour. So on the low end, a contractor estimate will probably come in at around $1,750 for just labor. This is right about in line with the costs I get from my contractors. There is a huge variation in contractor pricing, so get multiple bids.
Put these two numbers together and you’re looking at about $3,200 for a basic bathroom renovation, including 6 percent tax on materials and a 10 percent fudge factor. This does not include dumping fees and haul away. Normally my contractors bid anywhere from $3,500 to $5,000 for a basic bathroom renovation.
Just to give you a realistic idea on a couple more common costs, I pulled up the numbers from one of my past projects. This home was 1,200 square feet on two levels plus about an 800 square feet basement. The total renovation cost was approximately $85,000.
I’ve never had a home renovation that costs much less than about $35,000. Construction costs vary widely. Some people say I pay too much for work but I can’t get quality work done for any cheaper. And most people who just call contractors out of the yellow pages will find they’re quoted prices much higher than what I’ve listed here.
The only point I want to make is that you need to do your homework and get realistic about costs. My prices here are only examples. You need to know what your costs will be before you commit to a large project.
Justin Pierce is a real estate investor in Northern Virginia. In his occasional column, he will write about investing in real estate.