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Because Pellego does not know condition of the property, it generates five Scope of Work (SOW) templates: Maintenance, Light Rehab, Medium Rehab, Heavy Rehab, and To The Studs. Because Pellego does not know condition of the property,
While the template descriptions are the same for every property, the cost varies based on its structure details (e.g. size, rooms, etc.) and location (more expensive areas use more expensive materials).
Each Scope of Work comes with a description, bullet points of key needs, and a cost range based on total rehab cost or cost per square foot. The cost range is based on the estimated local cost of finishing the described work, including contractor markup and sales tax, for the specific structure and location.
Changing between Scopes of Work does not change the Rehab Budget(s) used in flip and rental calculations. Instead, the Rehab Cost Guide and other information on the Rehab Tab is organized to provide you context when you set or edit the Rehab Budget.
While the template descriptions are the same for every property, the cost varies based on its structure details (e.g. size, rooms, etc.) and location (more expensive areas use more expensive materials).
Pellego's rehab costs are based on material and labor costs. The cost of installing a new floor is the cost of flooring material plus the cost of labor to remove the old floor and install the new one.
Material and labor costs are fixed or variable.
For example, the material and labor cost of painting a front door is fixed in that it tends to be the same for houses of different sizes. In contrast, the material and labor cost of replacing interior doors is variable in that larger houses with more rooms have more doors. Some costs, such as countertops, have a relatively fixed labor cost to install and variable material cost based on the size and quality.
We refer to material size as quantity and the type or style of material as quality. We refer to material size as quantity and the type or style of material as quality.
For countertops, quantity refers to linear feet and quality refers to granite versus laminate. For flooring, quantity refers to square feet and quality refers to the use of hardwood, laminate, carpet, tile, or vinyl.
Material costs are always based on quantity and quality. Labor costs are normally based on material quantity, and occasionally based on quality (e.g. tile is harder to install than vinyl).
The best practice when estimating material quality is to base it on comps (or experience). As a shortcut, Pellego selects quality based on the price of the value neighborhood relative to the metro area.
Another building block of estimating rehab costs is the type and level of labor required.
Labor type refers to electrical versus plumbing, etc. Labor types that require more certifications, such as electrical, tend to cost more than those that need minimal training such as painting.
Labor level refers to journeyman versus foreman, etc. Certain work orders require multiple people, which usually requires at least one higher-level, higher-paid contractor to supervise.
Pellego uses these factors when estimating the labor cost of different jobs.
There are two more rehab costs that go on top of the material and labor costs: general contractor markup and sales tax.
General contractors make money based on marking up the labor (and sometimes material) costs. Sales tax goes on top of the the material, labor, and general contractor fee.
Pellego estimates the general contractor markup as 25% of the material and labor costs, and calculates sales tax based on a property's location.
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