Quick Guide to Rehab Costs and Lifespan

LifeSpan

One of the aspects of real estate investing that seems scary is determining rehab costs on a fix & flip or repair & maintenance costs for a rental.  Good news is, it’s not as hard as you think.

When you’re getting a short term hard money loan you need to estimate what your rehab costs will be so that you 1) get enough financing and 2) can determine if the deal will be profitable.  With a fix & flip it’s pretty straightforward.  Take your after repair value and subtract your rehab costs, closing costs and holding costs to determine your potential profit.

When you’re getting a real estate investor loan for a rental, it’s slightly more complicated.  Since you’re not fully rehabbing a rental property when you buy it (because it’s not necessary) you’ll want to have a good handle on what your ongoing maintenance costs will be to know if you’ll cash flow on a monthly basis.  The way you do that is by estimating the current age of the big ticket items.  If you know the lifespan of these items (below) you’ll be able to determine how much you should set aside each month.

For instance, say a roof costs $8,000 to replace in your area and lasts 20 years.  Say the current roof is about 8 years old.  You need to save $8,000 over the next 12 years so the cost of a new roof doesn’t come as a surprise.  12 years = 144 months.  $8,000 divided by 144 months = $55 per month.  Do that for each big ticket item.  Now these are just ballpark estimates.  You won’t get an exact age on the current life and just because something is supposed to last 20 years doesn’t mean it will.  It could last 15 or it could last 25.  Some estimates will be high and some low but you’re doing estimates on a bunch of big ticket items so they’ll average out.

The other thing to note, the lender for your short term hard money loan will review your estimates and, if they’re any good, let you know if they’re low or high.  They want to protect their money and one way they do that is by making sure you are successful with your rehab.

HVAC
Cost of replacement: $3500 to $8500
Average life span: 12 to 15 years

To prolong the lifespan of your HVAC unit the most important thing to do is regularly change the air filters.  You can do this yourself, have your tenant do it or set up a maintenance contract with an HVAC company.  Dirty air filters cause unnecessary strain on your HVAC system.  Once you near the end of the lifespan your HVAC unit becomes much less efficient, leading to higher electric bills, unhappy tenants and more expensive repairs when items like the compressor fail.

Roof
Cost of replacement: $5000 to $10,000
Average life span: 15 to 25 years

Most shingles are warrantied 25 years.  Roofs last a long time.  You might have to replace a shingle here or there along the way but roof replacements are infrequent.  When you need to replace, shop around because the range in pricing is huge.  And again, if this is a flip, your fix and flip home lender will be looking at the age of the roof when deciding on your loan.

Siding
Cost of replacement: $2500 to $15000
Average life span: 20 to 50 years

Lifespan of your siding is highly dependent on the material.  Brick will probably outlast your ownership.  Wood, concrete and vinyl siding will probably only need repairs here and there from storm damage, leaks or when replacing windows.  Keep on top of maintenance with power washing, either yourself or by hiring one of the many power washing companies out there.

Garage door and opener
Cost of replacement: Less than $500
Average life span: 12 to 18 years

Your garage door will probably last through your ownership.  Openers have a shorter life but it’s still fairly long and they’re cheap to replace.

Foundation
Cost of replacement: $5000 to $10,000 and up
Average life span: Life of home

You probably won’t have to deal with foundation issues unless you buy a property with an existing one or you let problems fester (like leaks).  You should always get a home inspection and appraisal before purchasing a property.  The two of these will help point out defects in your future purchase.

Windows
Cost of replacement: $200 to $1000 per window
Average life span: 20 years

Windows are another item that will likely last through your ownership of the home unless there are issues with them upon purchase.  The most common problem is when they no longer shut properly or are improperly sealed around the edges.  This will lead to drafts and higher utility bills which means unhappy tenants or less cashflow.

Deck
Cost of replacement: $8000 to $20,000
Average life span: 10 to 30 years

Wood decks should be sealed once per year, composite decks should be maintained by power washing.  If you do that, you’ll probably only have to replace a spindle or a board here and there.

Appliances
The range in price for these items are largely based on size and quality.  You can get away with cheaper appliances but you’ll have to replace and repair them more often.  Spending more doesn’t always mean better quality.  I’ve found there’s not much of a difference in quality once you’re in mid-range pricing.  Repairs may be more infrequent but more costly for higher end brands.

Refrigerator
Cost of replacement: $800 to $2000
Average life span: 12 to 15 years

Washer & Dryer
Cost of replacement: $500 to $800 (each)
Average life span: 8 to 10 years

Stove and microwave
Cost of replacement: $200 to $2000
Average life span: 7 to 15 years

Dishwasher
Cost of replacement: $500 to $900
Average life span: 8 to 10 years

So keep these numbers in mind when applying for investment property loans.  Whether it’s for a flip or a rental, knowing the current age, lifespan and cost of replacement for big ticket items will mean the difference between a mediocre career in real estate and hugely successful one.