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Posted over 8 years ago

​How Big Should Your Contingency Fund Be?

You need a contingency fund. Now that you’ve been told that for the billionth time, the next thing you probably want to know is how big should your contingency fund be? Here is how to figure out how much to put into your reserve fund, just in case the project comes with unexpected (expensive) issues concerning plumbing, foundation or something else.

For Small Rental Houses

If you invest in rental houses, the general rule of thumb for a small one is to add 10 percent. Add a bit more money to your contingency fund though if the property is in poor condition.

For Small Flip Houses

So you want to be smart about your flip? If the house seems in good shape, add 5 to 8 percent. That money gives you room for anything to go sideways, such as an electrical problem you never thought you’d uncover.

For Bigger Renovations

Go with 10 percent. While you could probably be fine with 8 percent, it’s best to add a bit more cushion for the “just in case” reason. If you have the funds, do it. That way if the reno ends up being $80k rather than the initial $60k you had projected, you’ll be fine.

Allowing yourself a bit of a cushion with a good-sized contingency fund can provide you peace of mind during your real estate project, regardless of its size. Use the above-noted tips for your next project.



Comments (10)

  1. One of my apartment buildings (3 doors) total cost were around 262.000. Its gross monthly rents are 1.975. So if I understand you correct, my initial cushion should be 26.200. Upon that, I should put 197.5 in the reserve fund every month. That seems like quite a hefty contingency fund, but probably better to be on the safe side once you`re scaling up.


  2. oops my contingency fund is always set to calculate at 2%


  3. Thanks for the reply, Brie!


  4. @Robert Glennon 10% of the purchase price would be wise contingency going into the investment, and once the unit(s) are rented you would save 10% of the gross rents as future contingency for cap x and other 'surprises' that may come up.


    1. This is just a baseline % that can be adjusted up or down based on the property condition and the amount of repairs needed.

  5. Hey Brie,

    Thanks for the information. One question, is the 20% contingency, on the flip, from the 60k budget meaning you add another 12k ( 20% from the 60k ) to the buget for a cushion. Now, you have 72k, altogether, budgeted for the flip? Is that it?


    1. Yep!


  6. For small rental houses you said "the general rule of thumb for a small one is to add 10 percent."

    10% of what?

    10% of purchase price?

    10% of monthly rent?

    10% of something else?


    1. 10% of monthly gross rents should be put in a contingency fund


  7. Thanks Brie, I've been lurking and learning, and I took action this summer and purchased a small single family rental unit. I was hoping that Brandon was going to cover this topic in one of his "askbp", but you just reinforced my thoughts, approximately 10%.