You estimate rehab costs by walking the property room by room, listing every needed repair, applying local price ranges (or contractor bids) to each, totaling it, and adding a contingency reserve on top for the surprises you cannot see. For the size of that reserve, borrow a lender's number. HUD requires 10 to 20% of the repair costs on a house 30 years or older in its own 203(k) renovation program. Repairs are the number beginners blow ... and a wrong repair estimate wrecks every downstream calculation. Here's how to get it close.
This is education, not construction or investment advice. Confirm big items with licensed contractors.
Why this number is make-or-break
The screening rule most operators start from puts your maximum offer at (ARV × 0.70) − repairs. It is a rule of thumb, not a standard anyone enforces, and it is only as good as the repair number you feed it. If you guess repairs at $30k and they come in at $55k, that $25k comes straight out of your profit ... or turns the deal into a loss. Repairs deserve as much care as ARV.
The room-by-room method
Walk the property with a checklist and estimate each system/area:
- Roof ... age, leaks, full replacement vs. patch
- Exterior ... siding, paint, windows, gutters, landscaping, foundation
- HVAC ... furnace/AC age and function
- Plumbing + Electrical ... updates, panel, code issues (expensive if bad)
- Kitchen ... cabinets, counters, appliances
- Bathrooms ... fixtures, tile, vanities
- Interior ... flooring, drywall, paint, doors, trim
- Big-ticket surprises ... foundation, mold, termites, sewer line
Assign a dollar figure to each from local price ranges, then total. Watch where those figures come from. The per-item costs published for the big items, roof, HVAC, plumbing, electrical and foundation, are vendor cost guides, usually national and usually undated, so use them to bracket the deal and let a local bid set the number you actually commit to.
Two ways to price it
- Rules of thumb (early screening). Many investors use a rough $ per square foot by rehab level ... light cosmetic, medium, or full gut ... to quickly ballpark a deal before investing time. The dollar figures attached to those tiers come from vendor cost guides, undated and national, and no primary source sets them, so this is a rule of thumb and nothing more. Useful for filtering, not for committing.
- Contractor bids (before you commit). Once a deal looks real, get written bids from licensed contractors with a detailed scope of work. This is your accurate number.
Start with the rule of thumb to screen; confirm with bids before you sign.
Always add a contingency
Even pros miss things behind walls, and the lenders who finance renovation work budget for that in writing. Two federal-scale programs publish their own numbers, and those are the ones worth borrowing.
- FHA 203(k). On a structure 30 years old or older a contingency reserve is required and runs 10 to 20% of the financeable repair and improvement costs, and the minimum rises to 15% when the utilities are not operable. Under 30 years old it is required only where there is evidence of termite damage, and otherwise discretionary up to 20% (HUD Handbook 4000.1, Update 18, II.A.8.a, Standard 203(k) Financeable Contingency Reserves, p. 397). Read the chart, not the headline number. It is conditional, and Limited 203(k) does not mandate a reserve at all.
- Fannie Mae HomeStyle. No reserve is required on a one-unit home, though the lender may still choose to set one. On a two- to four-unit property 10% of the total cost of the repairs and renovation work must be established and funded, and the lender may raise it to 15% where the scope warrants. It is meant to cover labor, materials, fees, permits, plans and specifications, and inspection costs (Fannie Mae Selling Guide B5-3.2-04).
Scope both honestly. The 203(k) chart is FHA's rule for FHA-insured renovation loans, the HomeStyle reserve is Fannie Mae's rule for that one conventional product, and neither one binds a cash flip or a hard-money loan. What they are is the cushion two federal-scale programs require of their own borrowers before they will fund the work, which makes them the benchmark to hold yourself to when nobody is making you. A deal that only works with a perfect rehab isn't a deal.
The estimating mistakes that burn beginners
- Estimating from the doorway. Walk every room; look up (roof/ceilings) and down (foundation/floors).
- Forgetting the invisible systems. Plumbing, electrical, and HVAC don't show in photos and cost the most to fix.
- No contingency. Guarantees you'll be short.
- Trusting one verbal quote. Get written, itemized bids from more than one contractor.
- Ignoring permits + timeline. Permit delays are holding-cost dollars.
The come-up move
Repairs are where optimism goes to die. Walk it room by room, price each item, get written bids before you commit, and pad for surprises. Conservative repair math protects every deal above it on the ladder.
Start free on Squatters to practice ARV + repair + max-offer math on real properties. Squat it. Fund it. Own it. 🦝