Verifying that Rehab Budget is Lender-Ready

[Denise Webster]

I’m curious how other investors and contractors are handling rehab budget verification before a deal moves forward.  One issue I see often is that the property may look profitable on paper, but the rehab budget is too light, too vague, or not tied to a realistic scope of work. That can affect not only the project outcome, but also the funding side.

A few questions I think are worth asking before treating a deal as lender-ready:

• Is the rehab budget based on a contractor walk-through or investor estimate?
• Are labor, materials, permits, utilities, and contingency included?
• Has the contractor accounted for hidden issues like electrical, plumbing, roof, foundation, HVAC, or code corrections?
• Is the draw schedule realistic for how the work will actually be completed?
• Does the investor have enough liquidity to cover gaps between work completed and draw reimbursement?
• If the rehab runs 10–20% over budget, does the deal still work?

For contractors, what are the biggest budget items investors tend to underestimate?

For investors, how do you confirm the rehab numbers before submitting the deal to lenders or deciding to close?