BiggerPockets Real Estate Podcast Episode: The Simple Formula to Estimate Renovation Costs (2025 Numbers)
Release Date: June 18, 2025

Introduction

In this episode of the BiggerPockets Real Estate Podcast, host Dave Meyer teams up with Henry Washington to address pressing questions from real estate investors. With a combined experience of 25 years in the field, Dave and Henry delve into topics ranging from estimating renovation costs to navigating property management and portfolio financing strategies. This episode is a treasure trove for both novice and seasoned investors aiming to optimize their real estate ventures.

1. Estimating Renovation Costs

Listener Question:
Chris from the Upper Peninsula of Michigan asks, "I'm looking to get into the buying and renovate (BUR) game and trying to estimate how much renovations will cost for an average distressed two to three-bedroom home, 1200 square feet or less. Is $50k reasonable for a small single-family home?"
(Timestamp: [01:00])

Henry Washington's Insights:
Henry affirms that estimating renovation costs is indeed feasible, especially for those without prior experience. He introduces the cost-per-square-foot method as a reliable framework:

• Cosmetic Light Renovation:
  $10 to $25 per square foot
  Suitable for painting, flooring, and minor updates.

• Mid-Tier Renovation:
  $20 to $40 per square foot
  Involves more substantial work like remodeling kitchens and bathrooms or moving walls.

• High-End Renovation:
  $35 to $75 per square foot
  Comprehensive overhauls, including structural changes and luxury finishes.

Notable Quote:
"You can just take an average cost per square foot and multiply it by the size of the house to get a rough estimate of labor and materials costs." — Henry Washington ([01:55])

Dave concurs, highlighting that while this method is effective for mid-tier markets, prices may vary in high-cost areas like New York or San Francisco. For Chris's scenario, Henry calculates:

• Mid-Tier Estimate:
  $35 per square foot × 1200 sq. ft. = $42,000

Given this, a $50,000 budget is deemed reasonable, assuming the property is structurally sound without significant issues like foundation problems or roof repairs.

2. Transitioning to Property Management Companies

Listener Question:
John from Nashville inquires, "To all self-managing landlords who switched to using a property management company, what caused you to make the switch? Was it to gain back time, improve efficiency, or better achieve your investment goals?"
(Timestamp: [06:44])

Henry Washington's Perspective:
Henry shares his personal journey of managing approximately 80 rentals before transitioning to a property management company. Initially, his wife handled day-to-day operations, but as the portfolio grew, it became evident that professional management could offer greater efficiency and expertise.

Key Benefits Highlighted:

• Terminology Matters:
  Instead of calling tenants "tenants," they are referred to as "residents," fostering a sense of community and respect.
  "Those little things make a difference in how a tenant or a resident will take care of your property." — Henry Washington ([08:00])

• Efficiency Over Passion:
  While Henry values personal care for his properties, he acknowledges that property managers bring efficiency that can enhance profitability.
  "Efficiency is arguably more important... more money that I'm making is basically the salary I was throwing out the window for me being my own bad property manager." — Henry Washington ([09:46])

• Cost-Benefit Analysis:
  Dave adds that hiring a competent property manager can save money by reducing vacancy periods and optimizing rent collection.
  "Money is very efficient for caring about property." — Dave Meyer ([10:50])

Notable Quote:
"Underwrite your deals as if you are going to have professional property management when you're making your offers." — Henry Washington ([14:49])

Henry emphasizes the importance of budgeting for property management from the outset, ensuring that even if investors switch to professional management down the line, their profitability remains intact.

3. Evaluating a Potential Flip/Rental in Phoenix

Listener Question:
Stepan from Phoenix asks, "I found an off-market property in central Phoenix that could be a solid flip or rental. Purchase price: $285k. Rehab estimate: $115k. ARV: $500k. Does this seem too much hassle?"
(Timestamp: [17:08])

Henry Washington's Analysis:
Henry meticulously breaks down the numbers to assess the viability of Stepan's deal:

• Total Investment:
  Purchase Price ($285k) + Rehab ($115k) + Closing Costs ($15k) + Holding Costs ($12k) + Agent Fees ($30k) = $172k

• Projected Revenue:
  ARV ($500k) - Total Investment ($172k) = $328k

• Net Profit:
  $328k - $285k = $43k

Despite the seemingly attractive profit, Henry raises concerns about the thin margin relative to the high rehab costs. Unexpected expenses could significantly erode profits, making the deal too risky.

Dave Meyer's Input:
Dave concurs, stating that while $43k is substantial, the risk-reward profile isn't favorable given the high capital and effort required. He suggests looking for less intensive projects with better margins or exploring multi-unit properties to enhance cash flow.

Notable Quote:
"If I'm spending $115k on renovation and only making $43k, that's a little too thin for me." — Henry Washington ([19:26])

Conclusion:
Henry advises against proceeding with the deal at the current price point, recommending a price adjustment to around $240k to make it more profitable and less risky.

4. Navigating Exclusive Agent Agreements

Listener Question:
A listener asks, "I want to do fix and flips. I connected with an investor-friendly real estate agent who now wants me to sign an exclusive buyer agency compensation agreement. Is it necessary to sign such agreements to work with multiple agents and access various deals?"
(Timestamp: [22:00])

Henry Washington's Response:
Henry clarifies that an exclusive agent agreement typically binds an investor to work solely with one agent, limiting access to deals from other sources. He outlines his approach to agent relationships:

• Property-Specific Agreements:
  Henry is open to signing exclusivity only for specific properties he acquires through an agent.
  "We have a gentleman's agreement... He gets exclusive access to list and sell all of my properties." — Henry Washington ([23:00])

• Avoiding Blanket Exclusivity:
  He steers clear of overarching exclusive agreements that restrict collaboration with multiple agents, as this can limit deal flow and flexibility.
  "There isn't one. And so in today's day and age, anything on market, any agent can sell you." — Dave Meyer ([26:46])

• Building Trust Without Contracts:
  Henry emphasizes establishing trust and mutual understanding with agents without the necessity of signing exclusive contracts. This fosters a more dynamic and open deal environment.

Notable Quote:
"If some other agent brings me a deal, I'll tell them if I'm interested or not. I'm going to use them." — Henry Washington ([25:00])

Dave Meyer's Insight:
Dave resonates with Henry's stance, highlighting that exclusive agreements can be restrictive and not always beneficial for investors seeking diverse opportunities. He encourages investors to work with agents who offer flexibility and value without demanding exclusivity.

5. Refinancing Strategies for Portfolio Growth

Listener Question:
Dave from Chicago presents a scenario: "I have four cash-flow positive rentals but am running out of capital to buy more. Considering a cash-out refinance on a property with $400k in equity to take out $200k, which would result in a negative cash flow of $500/month. Is it acceptable for the portfolio to maintain overall positive cash flow?"
(Timestamp: [32:18])

Henry Washington's Advice:
Henry evaluates the strategy by examining both its feasibility and potential pitfalls:

• Pros:
  Utilizing excess equity to fund new acquisitions can accelerate portfolio growth, provided the additional investments yield higher returns that compensate for any negative cash flow.

• Cons:

  • Risk of Underestimation:
    High rehab costs or unforeseen expenses could drastically reduce or eliminate profits.
  • Loan Structure Concerns:
    Henry recommends opting for a line of credit over a cash-out refinance to maintain lower interest costs and greater financial flexibility.
    "A HELOC allows you to pay interest only on the amount you actually use." — Henry Washington ([34:52])

Dave Meyer's Follow-Up:
Dave explores alternative strategies like the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) and emphasizes the importance of ensuring that any negative cash flow is temporary and manageable within the broader portfolio. He also considers the potential for increased vacancies and the impact on long-term profitability.

Notable Quote:
"If you're cash-flowing every month from your rentals, maybe you just enjoy that for a little while and then use the cash flow to buy your next deal." — Henry Washington ([35:43])

Alternative Recommendation:
Henry suggests considering the 1031 Exchange, allowing investors to sell a property and reinvest the proceeds into a larger multi-unit building. This strategy can enhance cash flow and provide more substantial returns with potentially lower management burdens per unit.

Conclusion

Dave and Henry wrap up the episode by emphasizing the importance of:

• Accurate Budgeting:
  Always underwrite deals conservatively, factoring in potential expenses like property management to safeguard profitability.

• Strategic Planning:
  Evaluate the risk-reward ratio meticulously before committing to high-capital projects.

• Building Trust with Professionals:
  Establishing strong, flexible relationships with agents and property managers can streamline operations and enhance investment outcomes.

Final Thoughts:
Whether you're diving into home renovations, contemplating professional property management, or strategizing your portfolio's financial structure, this episode provides actionable insights and practical frameworks to make informed decisions and achieve financial freedom through real estate investing.

Disclaimer: The content of this summary is for informational purposes only and does not constitute financial advice. Always consult with qualified professionals before making investment decisions.