J Scott - The Book on Estimating Rehab Costs

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The Book on Estimating Rehab Costs, Second Edition

J Scott

Published by BiggerPockets Publishing LLC, Denver, CO

Copyright 2019 by ScottBuilt, LLC.

All Rights Reserved.

Publishers Cataloging-in-Publication data

Names: Scott, J., author.

Title: The book on estimating rehab costs : the investors guide to defining your renovation plan, building your budget, and knowing exactly how much it all costs, revised edition. / J Scott.

Description: Denver, CO: BiggerPockets Publishing, LLC, 2019.

Identifiers: LCCN 2018957550 | ISBN 9781947200128 (pbk.) | 9781947200135 (ebook)

Subjects: LCSH Housing rehabilitation--Economic aspects--United States. | Real estate investment. | BISAC BUSINESS & ECONOMICS / Real Estate / General | BUSINESS & ECONOMICS / Real Estate / Buying & Selling Houses.

Classification: LCC HD255 .S37 2019 | DDC 333.33/83--dc23

Second Edition

Published in the United States of America

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To my awesome boys, Chase and Cade, who give me a reason to get out of bed each morningand then give me a reason to crawl back into bed each night, completely exhausted.

I love you guys.

J Scott

TABLE OF CONTENTS

WELCOME TO THE
SECOND EDITION

Its been nearly six years since the original edition of this book was published, and for anyone who has been active in the real estate industry during that time, it shouldnt surprise you that there have been some drastic changes.

When I wrote the first edition back in 2012, we were in the very early stages of recovering from the Great Recession and the 2008 housing crash. Prices of both renovations and real estate itself had bottomed out, and we were starting an upswing in most markets. But there was no way I could have predicted that just a few short years later, wed be riding a housing wave that is surpassing what we saw back in 2005 and 2006.

In many aspects of the economy, the recovery has been slow and methodical; but in real estate, the upswing has been sharp and dramatic. According to the Bureau of Labor Statistics, the number of construction workers in the U.S. increased nearly 50 percent between 2011 and 2016and this doesnt account for unlicensed contractors and the small, independent workers many investors are accustomed to working with.

Given these changes in the industry, I felt it was time for an update to this book. If youre familiar with the first edition, youre likely to notice the following industry-wide changes reflected in the second edition:

• Labor prices have increased considerably, especially in the areas of carpentry and other skilled trades. The biggest shift in the real estate industry since the Great Recession has been in the labor market. After the 2008 downturn, the vast majority of contractors had gone out of business or left the industry, and the handful of remaining professional contractors were struggling for work. This led to artificially low prices for renovation work. In the past ten years, the labor market has rebounded, and prices have increased to higher than pre-recession levels. In many areas, labor prices have increased 50 percent or more since 2013, especially with skilled and artisan contractors.

• Material prices have increased for non-commodity items. While not as drastic as labor price increases, materials prices in some areas and for some specific types of materials have increased dramatically over the past decade. Due to inflation, increased demand, and external factors such as international trade negotiations, the cost of most non-commodity materials has increased, and the cost of some materials including steel, lumber, and paint has increased considerably. Luckily, the cost of many commodities including fasteners and fixtures has increased very little, if at all.

• Price ranges around the country are now more consistent, with smaller ranges. After the 2008 recession, there was a good bit of discrepancy between renovation pricing in areas that stood up well to the housing crash and areas that got hit hard by the crash. It wasnt uncommon for renovation tasks to be several times more expensive in one area compared with another. But with the current revitalization in housing, prices across the country have started to converge a bit more. For reasons well discuss later in the book, youll still find that contractor prices in some placesCalifornia and New York City, for exampleare several times higher than most of the rest of the country, but for about 90 percent of the markets in the U.S., prices are now more consistent than they used to be.

• Smaller jobs and lower-cost tasks have increased in price more quickly than larger jobs and higher-end tasks. Contractors are no longer desperate for work, and in many cases, contractors have so much work that they can pick and choose what jobs they want to take. It should come as no surprise that, given a choice, contractors will choose larger and more expensive jobs over smaller and less expensive ones. It takes about the same amount of marketing and sales time to acquire a small job as a large one, so focusing on the larger jobs makes basic economic sense. For homeowners and investors, this means that finding contractors for smaller and lower-cost jobs is both more difficult and more expensive than it used to be.

My goal with this second edition is twofold:

1. Update the prices and price ranges for each of the renovation components in the book. To do this, I surveyed dozens of active and successful investors from around the country, not only to get an accurate assessment of their labor and material prices, but also to get an idea of what types of contractors theyre using and how they are completing their renovations.