Mastering the Walkthrough
Using Nailed-It to Estimate Rehab Costs
After finding a potential investment property, you’ll more than likely schedule an appointment to tour the property, but what exactly are you looking for? How does this tour help you gather impactful information? If you don’t have any experience in construction, but want to get started with your real estate pursuit, then congratulations because we have got you covered.
With the use of these tips and the Nailed-It Rehab Cost Calculator, you will finally feel confident in your analyses and make offers using data and facts. The information below will be split into two groups: Inspection Tips and Nailed-It Notes.
Inspection Tips are actionable things that you can look for when walking around an investment property as items to look for that could signify your rehab costs may be higher than you originally anticipated.
Nailed-It Notes are just general information that can help guide your decisions, such as the normal life expectancy of a hot water heater, as an example.
Use this resource to help arm yourself with the necessary information to properly analyze risk for real estate investments. This guide will focus on the period of time from when you pull up in your car to inspect a home until the time that you leave the property.
Whether you want to invest in Flips or Rentals – this article is for you. As David Greene mentions in his book 'Long Distance Real Estate Investing: How to Buy, Rehab and Manage Out-Of-State Rental Properties':
“The first trick you need to know when managing an out-of-state rehab is to as for the scope of work to be itemized.”
This holds true for investments, whether you are investing in state or out of state. Without itemization, rehab costs can and WILL skyrocket.
Now consider the ability to compare that scope of work to your itemized estimate from Nailed-It. You will be able to see where contractors are trying to overcharge you.
Armed with this data you can ensure that you optimize your investment.
We are assuming that you have performed the base level of research. What you will need to identify is:
- The local market trends
- Simply research the area and have a good feel for recently sold homes and what the rental market looks like
- What the ARV should look like
- If you do not know how to calculate this, don't worry, we will be publishing a quick resource for this shortly, and
- You have a Nailed-It account already set up to get accurate rehab costs
- If you don’t then you can set up an account for free!
With that in mind, we are counting on you already have researched the area and understand the After Repair Value (ARV) – which means that the only thing left to figure out is the rehab cost.
Traditionally, while walking thru a property, you may take some notes and possibly even a checklist so that you can estimate rehab costs. Armed with this “estimate” you begin negotiations and hope that the rehab estimate is close enough so that you make a profit.
With Nailed-It, you can eliminate that hope for profit.
You can be confident in your decision-making process because now all of the data that you need to make a decision is available instantaneously. Before you get in your car, you will be confident in ALL of your numbers, including what used to be an “estimate” of rehab costs.
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Prior to the Visit
Check with your realtor if the home is in a seismic zone, hurricane or high tornado risk zone, flood plain or flood-risk zone. You may find that the costs and risks associated with the location, which were mentioned above, may overwhelm the potential benefits from the investment. You may have just saved yourself a trip.
Also, when you are talking to the realtor you can ask them about the property zoning. Consider possibilities where this property may be under-utilized. If this home is zoned for a multi-family, can you add a second dwelling? Is there a garage to turn into a studio?
When arriving at a property, one of the first things that you should do is to assess the land and the slopes surrounding the property. Water is one of the most damaging elements to construction – you want to make sure that this home is not sitting in a basin.
Inspect the perimeter of the home to make sure that all the slopes lead away from the house and not towards it. If there is a risk of water damage, then Nailed-It can help you estimate costs to deter or prevent flooding such as the cost to install a French Drain to maintain a dry basement.
Here’s an example of how simple Nailed-It is to estimate the costs of installing a French Drain.
As quoted by a report on inspecting rehab projects prepared by the Department of Housing and Urban Development, a few items should be inspected prior to entering the home, which “may make the difference between a project that is economically feasible and one that is not”, such as:
- Tree removal
- Concrete work
Luckily, Nailed-It has you covered.
We recommend analyzing a property in sections. Think about the property in related components. These components include:
- Exterior Building: Think siding, roofing, windows
- Exterior Land: Think landscaping, pool, oil tanks
- Interior: Think HVAC, Electrical, Painting, etc.
- Interior Rooms: Think about the Kitchen and Bathroom primarily
- Arguably, the most important visually appealing aspects of your potential rehab projects
- Variable: Think components such as termites, mold, etc.
- Look for loose flashing (the metal between the roof and the siding) or signs of damage to the roof itself.
- Assess shingles for signs of curling.
- Look for clogged debris in drainage areas. Note where this is and look for signs of water damage in the home at that spot.
- If the roof is flat, look for areas of water collection or try to identify where the water would/should drain.
- Pitch of the Roof: If the roof is pitched (steep), then the only way to really assess it will be to have a professional climb up and assess it.
- Consider the age of the roof as one of the most important factors with regards to the costs associated with this system. We’ll go over the roof life expectancies below, but we recommend budgeting for that expense before it becomes necessary.
- Flat roofs are generally more expensive.
- Common Roof Types:
- Asphalt Shingles: Usually last about 20 years. If there are two layers, then it will probably last more like 15 years, but this is hard to assess from the ground. Replacing these shingles becomes mandatory when the individual shingles begin to curl.
- Wood Shingles: Usually last about 25 years. Wood shingles need to be replaced when they curl, crack or dry – the rule of thumb is to replace the roof when 1/3 of the shingles need replacement.
- Metal Roofs: These may include aluminum, steel, copper or iron roofs and they all may last 50 years or more.
- Flashing: Check the material between the shingles/roof and any joints such as the corners of a chimney, or the siding of a home where the roof of a garage is adjacent.
- Flashing prevents water from entering in these spaces and is key to keeping your home dry.
- Check the condition of this material and look for spots where it is lifting off of the roof.
- This may be hard to see without getting on the roof so get creative. Use bedroom windows to check out flashing and get a general feel for the condition. If it looks like this, you know to look for water damage!
- Look for any signs of moisture, cracks, or peeling.
- When you find moisture, make sure to try to get a sense of the amount of damage that was done to the wood behind the siding. Try to use crawl spaces if possible to check this out.
- Replacement is necessary to raise ARV if the home is an “uncommon” style for the neighborhood.
- Is the siding made of stucco? This may be more expensive if there is damage because matching paint colors can be nearly impossible. A minor repair may require repainting of the entire home – so you’ll want to keep this in the back of your mind.
- Wood Siding: Remember to consider fungal infestations with this type of siding – especially at corner joints.
- Nailed-It has you covered. Check the Variable section in Nailed-It to account for these costs.
- Inspect the windows functionality – do they lock? Even more fundamentally, do they open?
- Check the window frames for structure and deterioration.
- Check for water damage specifically as wood frame windows are at increased risk for fungal infestations.
- Windows can be
- Double Hung windows: The upper and lower sashes can move.
- Single Hung Windows: Only one sash of the window can move.
- Casement Windows: A window that opens and is attached by one or more hinge on the side of the window (think about one of the windows that you spin the crank to open)
- Projected out windows or projected in windows: As it sounds - windows that open either in or out.
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- Check with the homeowner if the home has ever had oil heat. Older homes may have oil tanks buried underground either in the front yard or the backyard. If this expense catches you by surprise, you’ll definitely be sorry you missed it.
- If the homeowner does not know about the past heating equipment, then survey the ground and look for a vent pipe (it’s supposed to be 4 feet above ground) with an accompanying fill pipe cover.
- This is an environmental hazard and will have to be removed at your expense if it gets missed.
- Find out when the last time the tank was pumped?
- If it has been longer than 2-3 years than assume there may be solids in the absorption field which shortens the lifespan of the field.
- Septic system should be downhill from the building.
- A Single Family Home (SFH) septic tank should be at least 1,000 gallons.
- The absorption field (the wastewater disposal area of the septic tank) must be rotated every 20-30 years. Make sure this area is not interrupted and that you weren’t banking on using this land for anything.
Up to this point, issues are pretty obviously evident. When you get into the house is where there can be a lot of variabilities, so we’ll try to make sure that you have everything covered.
This is a huge fear for a lot of investors – so we are going to provide you with all the things that we want to make sure are covered in an inspection so that you can feel confident moving forward with your purchase.
- Hot Water Heater: Dates of manufacture are printed in ‘MMYY’ format usually.
- Check for a shutoff on the cold water supply line – how is the condition?
- Check all of the pipe joints for mineral deposits and rust – if this is apparent then consider replacement.
- Also, check for a PRV (Pressure Relief Valve) and its condition on top of the tank or on the hot water line from the tank.
- For Gas-Fired Tank Water Heaters and Oil-Fired Tank Water Heaters, check the flue (the metal piping coming from the hot water heater that looks HVAC vent material) for clogs or soot deposits under the draft hood.
- Main Line: Leaks can be found by assessing the site above this pipe. You can also turn off the water flow inside the building and listen above the pipe (yeah, you might look a little crazy, but hey – all real estate investors are a little crazy) with a stethoscope (It sounds silly, but I bring one with me to each home inspection I go to. I highly recommend something like this, and it only costs $5 and could save you thousands.) If you hear water than you may be hearing a main line leak.
- Pressure Relief Valve: If you turn on a water source and there is unregulated high pressure or rattling noises in the pipes then consider the necessity to change the PRV.
- Supply Lines:
- Galvanized Steel Piping: Check for rust-colored water, or low rates of flow (usually caused by rust). If present, consider changing the supply lines.
- Brass Piping: Water leaking from pinholes will leave white deposits around fixtures, which indicates a necessity to think about changing the pipes.
- Copper Piping: Usually only need to be replaced if there is low water flow or obvious leakage.
- Hot Water Heater:
- Gas-Fired Tank Water Heaters: Usually will last about 11-13 years.
- Oil-Fired Tank Water Heaters: Usually last 11-13 years.
- Electrical Tank Water heaters: Usually last 15 years and require a larger storage tank then the above tanks.
- Curb Valve: This is the valve at the connection between the city plumbing and the home’s plumbing system. It’s usually located near the municipal plumbing (the street) and would (usually) be the responsibility of the municipality, which is why you won’t see it in Nailed-It.
- Main Line: This is the pipe that connects the Curb Valve (street side) to the Master Shutoff Valve (inside the walls). This should last anywhere from 20-30 years – make sure you are accounting for the possibility that this pipe leaks if the home is 40+ years old.
- Supply Lines:
- Galvanized Steel Piping: Usually lasts about 20-50 years. Higher risk for rust.
- Brass Piping: Can either be red or yellow. Red will usually last about 70 years while yellow brass piping will usually last for about 40 years.
- Copper Piping: Usually in homes from the 30’s and will last around 50 years.
Below, you can see how quickly you can shift from replacing a water heater to re-doing the flooring once you click the Interior categories in Nailed It.
- Find the main electrical panel and assess the condition. Any signs of water damage or rust would be concerning.
- You will also be assessing for black marks near outlets.
- There are differing opinions on this problem, so you’ll want to safely check the outlets. Is it dirt buildup? This is possible overtime from airflow issues around outlets, but if there is a burn mark (this is called Arcing – when an electrical current “jumps” across a gap and there is a spark/heat during this. See you really do learn something new everyday) then this outlet may have bigger issues such as loose wiring. Check Nailed-It to estimate costs to replace outlets.
- Assess for “knob and tube” wiring. You can identify this by finding porcelain insulators (knobs) for wiring running in open spaces in the basement or crawl space.
- Consider flipping each circuit breaker to make sure they are in functional condition.
- Have an electrician assess the functionality of the system and simulate an overload condition to test each breaker if you have any concerns about the electrical system.
- Electrical systems from before the 11940sare more than likely going to require an overhaul and replacement.
- While we’d love to tell you that there is a lot that you can do to inspect this system, it is difficult to do and potentially dangerous so leave this one to a professional, but account for costs that you can find on your own and be prepared to update your estimate based off of the professional feedback you receive!
- Open the access panels and look for rust. If there is an AC Evaporator Coil or any plumbing system pieces, located over the furnace, look for rust from condensation.
- When someone turns up the thermostat, assess for the following, if they are present then consider replacement:
- Oil Fired Units: look for a Puffback (smoke/soot release)
- Gas Fired Units: look for flames “licking” the cover plate
- Assessing the combustion process:
- Oil-Fired Units: the flame should be clear.
- Gas-Fired Units: the flame should be bluish – if the flame lifts off the burner head then there is too much air getting in.
- Air Conditioner:
- Activate the compressor: It should start quietly, and a fan should start at the same time. Let it run for a few minutes – if the air is not warm flowing over the condenser then either there is not enough refrigerant, or the compressor is not working properly.
- Refrigerant Lines: check the insulated (larger) line for signs of refrigerant leakage, which would appear as frost.
- Forced Air System: Traditionally refers to a heat source and the ductwork associated with this system. Check for these things and make sure that this system is inspected more thoroughly during your inspection period.
- Heat Exchanger: Located above furnaces and must contain no cracks. It is very difficult to assess even for professionals. Also, look for rust here as a sign of damage. This piece will usually last less than 25 years.
- Circulation Blower: Look inside for any signs of damage. Have the system on and listen for unwarranted noises from the fan.
- Furnace: Usually will last about 15 years.
- Air Conditioner:
- Compressor: the piece that pump refrigerant gas usually lasts 5-15 years.
- Refrigerant Lines
- The larger line carries cold refrigerant to the compressor and should be insulated the whole way.
- The smaller line carries hot refrigerant to the evaporator.
- Forced Air System consists of Heat Exchanger, Furnace Controls, Circulation blower and ductwork.
- Heat Pumps: Electrically operated air-conditioning systems that can extract heat from outside to transfer it indoors. Check this with the Central Air Conditioning Inspection. A heat pump is similar to an Air Conditioner but is capable of also providing heat.
Everything covered above will help you to make an informed decision. Hopefully, next time you check out an investment property you can feel 100% confident in your offer because you used Nailed-It to estimate rehab costs accurately, quickly, and easily.
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