Ask The Apt-Guy: How Do You Determine The Amount of Rehab Dollars Needed on a Project?

bruce

2:00

If you're going to go do it on your own the very first time...Please reach out to somebody!

How Do I Approach Rehab?

People ask me all the time, how do I approach rehab? You know, how do I build my rehab budget on an apartment complex? So there’s a couple of things there really. So I think a lot of times the first part of a question along those lines is, you know, I’m new to this Bruce. I don’t know how to even estimate, right? To know if I should offer on this property. How do I know that? Matt, look, I hate to tell you, but it’s going to come down to experience. My biggest advice for you there is you need to find somebody on your first deal that’s been through it. Hopefully you could be part of somebody’s general partnership that has done these deals, done a lot of deals done, deal successfully. Obviously you would think, right, but make sure that they’ve, they’ve got a good track record, they’ve been successful and learn from them.

Reach Out To Somebody! (00:44)

If you’re going to go do it on your own the very first time, I’m not saying don’t do it. That’s what I did, but I had successful people around me. I had mentors in my life. Please reach out to somebody. Even if it costs you some money. Get a mentor with you, somebody that’s done it before that can cut you. Have somebody to bounce these ideas off of. Okay, so now let’s go into, let’s say you’ve gotten past that point and you’ve got the deal under contract now. So now how do I know my budget? My estimated budget for rehab was good. So what you’re going to do now is you’re going to get all the different trades, your roofer, your painter, your your pull inspector guy, your wood destroying insect, all these people that are going to get all your bids to you, right?

Have Them Bid (1:23)

Because you’re going to walk with them, ask them to bid these different things for you. Tell them what you’re looking at, what you’re looking for, you’re gonna compile all those bids. Usually got to do that within the first week or two of due diligence. After you’re under contract, compile those bids, add them up. Let’s say those come up to a hundred thousand dollars of rehab that you think you need to fund. And some of that might be unit upgrades, right? So you got to keep all of it in mind. So let’s say it’s a hundred thousand dollars. If you come into the deal with only a hundred thousand dollars earmarked for your rehab and something comes up after you close it, you don’t realize you could be in some trouble, right? So overfund your rehab budget, if the deal doesn’t work, if I over-fund the rehab budget, Bruce, I don’t think you should do that deal.

Finally…(2:07)

You’re gonna find things you didn’t anticipate once you close. So if you have a hundred thousand dollar rehab and you bring it a hundred thousand dollars for that a hundred thousand dollars rehab, if you find $25,000 worth of problems afterward, you’re in trouble. So I would always bring in 25 to 50% more than your anticipated rehab dollar needs to make sure you don’t get yourself hung out. You know, just free swinging there because if you have to go back to your investors because you didn’t raise enough money, good luck getting another deal done because that word’s going to spread very, very quickly. So for me, that’s the two ways to approach your rehab budget. And again, please always over-fund your rehab budget. Thanks, guys.

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