Planning To Rehab A Home? These 5 Cost Categories Will Keep Your Budget On Track

Posted by Wendy Poltorek // January 19, 2022 // Blog / Cleveland / Real Estate Investment / Selling Your House Fast // Costs of a rehab team / Costs of ownership / Costs of purchase / Costs of rehab / Costs of selling / five home rehabbing cost categories

With a little planning and the right team, you’ll keep your budget in the black when you start rehabbing your home on the right financial foot!

How to estimate cost and calculate the price tag on a house rehab, with no construction background is a common question most newbies ask. A home rehab’s costs involve more than just what you pay your contractor, so make sure you consider them all by dividing them into five home rehabbing cost categories:

1. Costs of a rehab team. Build your rehab team before you start a project. This gives you time to thoroughly screen each of your team members. The last thing you need is to hire the wrong home inspector or contractor because you were closing on a deal and crunched for time. You want qualified people who understand your needs and investing as a business. If you’re wondering what your team should look like, here are the main players:

Attorney
Lenders
Real estate agent
Insurance agent
Contractor(s)
Home inspector

Ask other, more seasoned real estate investors for recommendations. It’s a good way to find solid, trustworthy team members, and most investors will be glad to recommend who they use.

The only possible exception to this is contractors. Good contractors can be hard to come by, and a real estate investor may not be willing to compete with you for their contractor’s time. So, you may be on your own. If you find yourself in that situation, ask employees at your local lumberyard or hardware store for recommendations. You can also search sites like Craigslist or Angie, but you’ll want to personally vet whomever you choose.

Once you assemble your team members, use their help to get more accurate rehab numbers. It could also be beneficial to enroll in a program for learning the ins and outs of real estate investment, like Success Path.

2. Costs of purchase. The biggest chunk of this category is probably the money you’ll pay to close on the property. But also included here is any expense you might have incurred while hiring your team members.

There are some other hidden costs here that you might not have thought of, such as flood certificates or various government fees. But in general, your main expenses will likely include the following:

Purchase price
- Home inspection
- Home appraisal
- Surveys
- Lender fees (your bank’s closing costs, appraisal fees, origination costs, etc.)
- Insurance
- Attorney fees

3. Costs of rehab. This includes contractor fees, permits, and any work done on the house. It can be difficult to get an accurate number for this category, but there are a few things you can do to get close.

First, have your contractor do the walkthrough with you and have a scope of work ready. Get their advice on things that need to be fixed or changed, and get a quote from them. Or, find a home inspector with construction experience, then ask questions and listen to their input as they inspect the house – if you are newer, this could help you put together a scope of work. You could also try partnering with another more experienced house flipper so they can teach you the tricks of the trade.

4. Costs of ownership. These expenses happen while you are in possession of the home. This is a common area overlooked by inexperienced house flippers, so make sure you account for these expenses:

Mortgage or lender payments
Property taxes
Property insurance, including flood insurance, if necessary
Utilities
Yard upkeep

5. Costs of selling. It might seem like this category should be all profit. That may be true if you do the job right, but it’s still important to budget for the costs that come with selling a house, like the following: