What Is Cost Estimate?
A cost estimate gives you a ballpark number for rehab before you have contractor bids. It feeds into your renovation budget and 70% rule math. Use scope of work plus market rates (per sq ft, per unit) to build it. Refine with actual bids before closing.
A cost estimate is a projected price for renovation work, derived from labor rates, material costs, and market benchmarks, used to underwrite deals before final contractor bids.
At a Glance
- What it is: Projected price for renovation based on scope, labor, and material costs
- Why it matters: Lets you underwrite deals before committing; avoids overpaying for properties
- Key detail: Per-sq-ft estimates ($15–$25 cosmetic, $40–$75 full gut) vary by market
- Related: Contractor bid, scope of work, holding costs
- Watch for: Estimates are not guarantees; always get final bids before closing
How It Works
Per-square-foot method. Cosmetic rehabs often run $15–$25 per sq ft; full rehabs (kitchens, baths, flooring, paint, systems) $40–$75+. Multiply by livable square footage. Quick but rough—doesn't account for room-specific costs.
Line-item method. Break down by scope of work: kitchen (cabinets, counters, appliances), baths (tile, fixtures), flooring, paint, electrical, plumbing. Assign labor and material rates per task. More accurate but requires more data.
Comparable project method. Use costs from past flips in the same market. If your last 1,200 sq ft cosmetic ran $32K, a similar project can start there. Adjust for complexity and inflation.
Refinement. Treat estimates as pre-offer tools. Before closing, get at least two contractor bids and update your renovation budget. If bids exceed estimates by 15%+, renegotiate or walk.
Real-World Example
Karen Wu is evaluating a 1,350 sq ft ranch in Atlanta. She needs a quick cost estimate before making an offer. Her scope of work: kitchen, baths, flooring, paint, exterior. She uses Atlanta benchmarks:
- Kitchen: $12,000–$16,000
- Bath 1: $5,000–$7,000
- Bath 2: $4,500–$6,000
- Flooring (1,350 sq ft × $4/sq ft): $5,400
- Paint (interior + exterior): $4,500–$6,000
- Exterior (landscaping, paint): $2,500–$3,500
- Permits, dumpster, misc: $2,000
Total estimate: $35,400–$45,900. She uses $42K as her working number for the 70% rule. ARV is $295K. Max offer: ($295K × 0.70) − $42K = $164,500. She offers $158K.
After contract, she gets two contractor bids: $44,200 and $47,800. She goes with $45K (middle) and adds 10% contingency. Final budget: $49,500. Still under her max; she closes.
Pros & Cons
- Enables quick underwriting before you have bids
- Helps compare multiple deals
- Supports 70% rule and ARV math
- Identifies high-cost items early
- Not a substitute for actual bids
- Market and labor rates change
- Can be optimistic if you underestimate complexity
- Hidden issues can blow estimates
Watch Out
- Optimism bias: Investors often underestimate; add 10–15% contingency to estimates
- Market variance: Costs differ by city and season; use local data
- Scope creep: If you add items, estimate must increase—don't assume "it'll fit"
Ask an Investor
The Takeaway
A cost estimate is your pre-offer tool. Use it to underwrite quickly, then replace it with real contractor bids before closing. A disciplined estimate keeps your renovation budget and holding costs under control.