Estimating Rehab Costs (and Applying the Theory to Your Life)

WHY care: This post, on the surface, is for real estate investors looking to better estimate the cost of rehabbing a property they’re looking to buy. Rehab is a significant cost for most investors so getting a good, conservative, estimate is very important. After learning the process, I realized that it applies almost perfectly to rehabbing one’s life as well. Therefore, anyone looking to improve some component of their life should give this a read.

WHERE I learned this: I learned the process behind rehab estimates from The Book in Estimating Rehab Costs by J Scott, published by BiggerPockets. If you want to learn more about the process I suggest you read the book, it’s just under 200 pages and goes into far greater detail than I will here. The application of the process to life is something I created after reading and thinking about the book. I hope you enjoy.

HOW to do it: Before visiting a potential investment property, one should have a list of the 25 major components that go into rehabbing a property, for example: plumbing, electric, roofing, floors, etc. For a complete list, check out the book. One must fully understand each of the major components and know what comprise them. If we look at HVAC for example, there are three main sub components: the heating system, the cooling system, and the distribution system. One must have a basic understand of all of these BEFORE going to see a property, so that one knows what to look for (duh?).

One should also have a general understanding of what can go wrong in each of these areas, also known as the scope of work. If you’re looking at the HVAC components, you probably are not gonna be checking the foundation, you would do that separately. The scope of work for HVAC tasks are mostly limited to: service calls, HVAC maintenance, installing forced air, replacing the furnace, replacing the AC compressor, replacing the heat pump, and replacing the boiler. For almost every component (where it is applicable), service and maintenance calls are always included in the scope of work because, more than likely, every component needs a little bit of care, if not a whole makeover. You’ll also notice that each task in the scope of work directly ties back to a component, the AC compressor is directly related to the cooling system. It might need to be replaced in every property you look at, but it is important to be aware that you might need to. The same goes for every component.

The next step is to actually see the property and inspect it (with a licensed inspector). You should be marking things on your list based on the components, sub components, and scope of work. If you have a limited budget, you will want to look for MAJOR problems that need to be solved. For instance, if the furnace is 100 years old and nasty, you will want to tackle that first, before looking at the design of the grates the heat comes out of. Finally, you must determine how much each scope of work task costs (call up people and ask based on these specific tasks) and how you are going to pay for it (i.e. upfront, after completion, etc.).

The key to the whole process is to break everything down piece by piece by piece. Then find the costs of the smallest pieces, the scope of work tasks for each sub component, sum them together to get the cost of each sub component, sum those together to get the cost of each component and lastly, add each of those up to get the total cost of the project. Based on what you noted as the most important and impactful tasks, the ones that add the most value or mitigate the most risk, you should prioritize and execute within your budget. Simple, not easy.

I believe the same philosophy and process can be applied to improving your own life (or rehabbing it). It is relatively easy to break your life into components, your work, your family, your significant other, your learning and growth, your health and vitality, etc. Let’s use health and vitality as an example, as most people want to improve this area. We have just completed the first step, identifying the major component. Now it’s time to take a look at the subcomponents of our health and vitality. I see the two main ones as our diet and our exercise. Now we must break each of these into tasks to fit our scope of work. In general, dietary change consists of cutting out junk food, incorporating healthier food, eating more food, eating less food, cooking at home more, tracking your calories. This list isn’t perfect, it’s just my opinion; you should figure out what your scope of work is based on your goals. Now that we know what to look for, we must take a look at ourselves to see which tasks will add the most value and mitigate the most risk. If you are severely overweight, tracking calories and micronutrients might be a bit of an overkill, so cutting out junk food and eating more fruit is an easy, yet impactful first task to complete.

Now we must figure out how much it will cost. In this example, the cost of cutting out junk food may be bringing an apple to work so you don’t go to the vending machine for potato chips when you get hungry. This next part is the most important, as nothing will get done if this doesn’t happen. The final part is determining how to pay for it. This step,translated into self-improvement language, is how you are going to be held accountable. It’s easy to say that you’ll eat an apple instead of chips, but what do you do when you REALLY want chips? Having some sort of accountability system in place ensures that your task actually gets done! Two examples I use and have used are checklists and partners. I have a weekly and daily checklist that I use to hold myself accountable to weekly and daily tasks such as lifting 3x per week and meditating 2x per day. If I don’t put an x in the box, I’m frustrated with myself and more driven to complete the tasks the next day. Partners are great for larger goals such as cutting out junk food. You can have a friend call you every night at 8pm asking if you ate junk food. It works even better when the two people have the same goal, as you can make a friendly competition out of it.

Putting this analogy all together, you can make major strides in any area of your life by identifying specific scope of work tasks for each component of your life, combining the costs, prioritizing the ones that add the most value, then executing them with someone or something to hold you accountable. It is a simple, step by step process, but it is far from easy. You must strategize, then commit and take action if you want to see results.

If you have any questions or want my opinion on certain scope of work tasks within your life components feel free to reach out via email or the comments, or on Instagram (@one_percent_closer).