Ballpark to Budget: The 4 Stages of Renovation Due Diligence

[Image from Gemini]

Developing the final renovation list is a process, not a one-time event. It starts with an initial list and gets refined through additional interations. Here’s the typical sequence we follow:

Initial Estimate

The initial estimate, or “rehab ballpark,” is based on MLS photos and/or an on-site visual evaluation by our team. It reflects renovation items observed—no testing or validation is performed. A sizable miscellaneous cost pad is included to account for unknowns likely discovered later. This estimate provides a high-level renovation cost ballpark to support an “investigate further”/”look for another property” decision.

Second Estimate

The second estimate is an updated approximation provided after the property manager reviews footage captured by our team and identifies recommended items for both minimal and full renovation scopes. This evaluation is based purely on a visual inspection, with no testing conducted, and updates the initial estimate in the report.

Third Estimate

Once your offer is accepted, due diligence begins. All inspections are performed during this period. You can cancel for any reason and receive your earnest money back—though you must still pay the property inspector. The renovation company provides pricing based on the systems and cosmetic inspections. There are at least two inspections:

Systems inspection

• A licensed inspector evaluates major systems—plumbing, electrical, and HVAC. We create a separate report containing our comments on each inspection item. Both documents are sent to you for your review. Any required repair repairs are added to the renovation list. If needed, we may schedule additional inspections (roof, HVAC, etc.), and those findings are added as well.

Cosmetics inspection

• Selena Tsai from our team, the property manager, and a renovation company representative walk the property together to identify cosmetic updates needed. These items are added to the renovation list.

After both inspections are complete, we gather vendor quotes and update the renovation list with accurate quantities and costs.

Final Renovation List

We hold a renovation review meeting with you, the property manager, Selena, and others from the Fernwood team. Each item is evaluated based on cost, rent impact, and time-to-rent based on tenant preferences and competing properties.

The process is illustrated below.

The final renovation list is typically a focused subset of the full list. Depending on market competition, we may recommend completing only minimal upgrades now and deferring others until after the first tenant moves out.

Notes

• Each time the property returns to the market, we reassess needed updates based on current competition.
• Licensed inspections are typically conducted at the client’s expense, while our initial rehab ballpark estimates and cosmetic evaluations are provided at no additional cost.

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