How Much Contingency Do You Build Into Rehab Budgets?

Question

5%?

10%?

15%?

More?

Curious what investors are seeing in today's renovation environment.

Chris Seveney · Answer

Depends on the type of renovation, never less than 10% though.

Henry Lazerow · Answer

10% but the profit margin should also be big enough that if goes over you do not lose.

Frank Pyle · Answer

Great question, Linda.

In today’s renovation environment, I think contingency needs to be more than just a small line item. For lighter cosmetic rehabs, 10% may be reasonable if the scope is clear and the property has been walked thoroughly.

For older properties, heavier renovations, or anything involving mechanicals, structural issues, foundation, sewer, roof, electrical, plumbing, or unknown tenant damage, I would be much more comfortable seeing 15%–20% built in.

The biggest issue I see is not just material cost anymore. It’s missed scope, contractor delays, change orders, and surprises once walls, flooring, or systems are opened up.

My general approach is:

Cosmetic rehab: 10% contingencyModerate rehab: 15% contingencyHeavy rehab / older property / unknown condition: 20% or more

The contingency should also be evaluated alongside the exit strategy. A flip with tight margins needs a much stronger buffer than a buy-and-hold where the investor has more flexibility.

Curious to hear what others are using right now, but I’d rather see investors over-budget slightly than have a good deal get squeezed by surprises halfway through the project.

Tabish Masood · Answer

This is a tough one. I think it really depends on the flip. I'd say 10-20%.

Jules Aton · Answer

Usually 10%

Mick Wadley · Answer

Yeah, 10-15% lines up with what I'm seeing too, but I'd push back a little on treating it as one flat number across every deal.

Older homes (pre-1980s especially) I'm building in 15-20% minimum, just because you don't really know what's behind the walls until you're in there. Knob and tube wiring, cast iron plumbing, foundation issues that don't show up until demo. Newer builds or a place I've already had a solid inspection on, I'll run closer to 10%.

The other thing that's bitten people in the last year or two, and worth factoring separately from your contingency line, is how long materials and labor are actually taking to source right now. It's not just cost overruns anymore, it's timeline overruns turning into cost overruns because you're carrying the loan longer than planned. I've seen a few investors budget the contingency fine but not budget for an extra month or two of holding costs if a contractor's backed up or a specific material is on a longer lead time.

So my rough rule of thumb: 10% if I've walked it thoroughly and know the vintage, 15%+ if it's older or I'm buying somewhat blind, and then a separate mental buffer for holding costs on top of that if the rehab is anything beyond cosmetic.

What's the property vintage and scope you're weighing this against? That'd probably narrow it down more than a blanket percentage would.

Peter Mckernan · Answer

It is typically 10-15% for me these days.

How Much Contingency Do You Build Into Rehab Budgets?

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